<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 11, 1997
REGISTRATION NO.: 333-28365
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
HALL, KINION & ASSOCIATES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7370 77-0337705
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
19925 STEVENS CREEK BOULEVARD
CUPERTINO, CALIFORNIA 95014
(408) 863-5600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
BRENDA C. HALL
CHIEF EXECUTIVE OFFICER
HALL, KINION & ASSOCIATES, INC.
19925 STEVENS CREEK BOULEVARD
CUPERTINO, CALIFORNIA 95014
(408) 863-5600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
<TABLE>
<S> <C>
SCOTT C. DETTMER DAVID J. SEGRE
MARGARET E. NIBBI ROBERT G. O'CONNOR
ROBERT G. SPECKER MICHELLE L. WHIPKEY
CHRISTINE M. NAKATA WILSON SONSINI GOODRICH & ROSATI
GUNDERSON DETTMER STOUGH PROFESSIONAL CORPORATION
VILLENEUVE FRANKLIN & HACHIGIAN, LLP 650 PAGE MILL ROAD
155 CONSTITUTION DRIVE PALO ALTO, CALIFORNIA 94304
MENLO PARK, CALIFORNIA 94025 (415) 493-9300
(415) 321-2400
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value............. 2,892,250 $13.00 $37,599,250 $11,394(3)
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 377,250 shares that the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a).
(3) The registration fee was previously paid on May 28, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 11, 1997
2,515,000 SHARES
[LOGO OF HALL KINION]
COMMON STOCK
Of the 2,515,000 shares of Common Stock offered hereby, 1,666,667 shares are
being sold by Hall, Kinion & Associates, Inc. ("Hall Kinion" or the "Company")
and 848,333 shares are being sold by the Selling Stockholders. The Company will
not receive any of the proceeds from the sale of shares by the Selling
Stockholders. See "Principal and Selling Stockholders."
Prior to this offering (the "Offering"), there has been no public market for
the Common Stock of the Company. It is currently estimated that the initial
public offering price will be between $11.00 and $13.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Company has applied to have the Common
Stock approved for quotation on the Nasdaq National Market under the symbol
"HAKI."
SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount (1) Company (2) Stockholders
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share. $ $ $ $
Total (3). $ $ $ $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $900,000.
(3) Certain Selling Stockholders have granted to the Underwriters a 30-day
option to purchase up to 377,250 additional shares of Common Stock solely
to cover over-allotments, if any. If the Underwriters exercise this option
in full, the Price to Public will total $ , the Underwriting Discount
will total $ and the Proceeds to Selling Stockholders will total $ .
See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and their right to reject any
order in whole or in part. It is expected that delivery of the certificates
representing such shares will be made against payment therefor at the office of
Montgomery Securities on or about , 1997.
-----------
MONTGOMERY SECURITIES
ROBERT W. BAIRD & CO.
Incorporated
THE ROBINSON-HUMPHREY COMPANY, INC.
, 1997
<PAGE>
HALL KINION:
IT PROFESSIONALS FOR THE NEXT
GENERATION OF TECHNOLOGY
[LOGO OF HALL KINION]
The Staffing Solutions People
[COLLAGE OF FOUR DIFFERENT ABSTRACT IMAGES]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE
COMPANY, INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET
PRICE, PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION
IN THE COMMON STOCK MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus, including information under "Risk Factors." Except as
otherwise specified, all information contained in this Prospectus: (i) assumes
no exercise of the Underwriters' over-allotment option; (ii) assumes the
retirement of 800,000 shares of the Company's Common Stock in satisfaction of
certain promissory notes; and (iii) except in the Consolidated Financial
Statements, assumes that each outstanding share of Series A Preferred Stock of
the Company will be converted into approximately 1.04 shares of Common Stock
upon the closing of this Offering assuming an offering price of $12.00 per
share. See "Description of Capital Stock" and "Underwriting." References to the
"TeamAlliance Acquisition" refer to the acquisition by the Company of certain
assets of TeamAlliance Technology Partners L.P. and certain limited liability
and management companies (collectively,"TeamAlliance").
THE COMPANY
Hall, Kinion & Associates, Inc. is a leading provider of specialized
information technology ("IT") professionals on a contract and permanent basis
in 14 major technology centers located throughout the United States and in
London. The Company provides its services primarily to high technology
companies, such as software developers, computer systems manufacturers and
telecommunications suppliers, primarily for use in their development of next
generation products. These companies require highly skilled technical personnel
in their engineering, product development and quality assurance functional
areas (collectively, "R&D departments"). To meet the specialized needs of these
clients, the Company provides its services through distinct technology practice
groups ("Practice Groups") organized around specific technologies (such as
Windows, Unix or CAD) frequently used by such clients. The Company believes
that this specialization enables it to respond rapidly to its clients and
provide leading-edge technology assignments for its IT professionals. In 1996,
the Company placed contract and permanent IT professionals with an extensive
group of high technology clients, including Borland, Cisco Systems, Microsoft,
Oracle and numerous emerging growth technology clients, with no single client
representing more than 5.0% of net revenues. With the Company's acquisition of
TeamAlliance in December 1996, the Company expanded its service offerings to
include traditional IT professional services for information systems ("IS")
departments of corporate clients. The Company believes that the IS business
complements its core R&D business and allows the Company to further leverage
its specialized Practice Groups and its national presence.
The high technology industry continues to experience substantial growth and
rapid rates of innovation. These trends, combined with intense competition,
have placed pressure on high technology companies to shorten product life
cycles and the time-to-market of new products. The development of next
generation products, however, often requires significant and highly specialized
technical talent which may not be available internally. As a result, high
technology companies are frequently turning to supplemental sources of IT
professionals with expertise in current technologies. Furthermore, as new
technologies and systems are introduced, businesses which rely on them for
mission-critical functions must implement these systems within their already
complex computing environments. Consequently, IS departments are faced with the
challenge of finding qualified IT professionals to design, develop, deploy and
maintain their systems. To address these demands for contract and permanent IT
professionals, both R&D departments of high technology companies and IS
departments of large corporations are turning to IT professional service
companies to augment their existing operations. In July 1996, Dataquest
estimated that the size of the IT professional services market in the United
States in 1995 was approximately $44.3 billion. Dataquest estimates that this
market will grow at a compound annual rate of approximately 15.0%, reaching
approximately $89.2 billion by the year 2000.
The Company's objective is to provide efficient and high quality contract and
permanent IT professionals to R&D departments of high technology clients and IS
departments of corporate clients and to become the "agent
3
<PAGE>
of choice" for IT professionals. To achieve this objective, the Company: (i)
focuses on technology-driven clients that typically require IT professionals
with more highly specialized skill sets than traditional supplemental IT
personnel; (ii) provides specialized IT services through distinct Practice
Groups that are focused on specific technologies and that operate relatively
autonomously with their own sales forces and recruiting personnel; (iii)
pursues cross-selling opportunities between permanent placement and contract
services; (iv) seeks to attract and retain qualified IT professionals; and (v)
provides strong corporate support to its 14 regional markets.
In late 1994, the Company implemented a growth strategy intended to create a
network of offices in regional markets, each comprised of multiple Practice
Groups. Key elements of this growth strategy are to:
. ADD PRACTICE GROUPS TO EXISTING REGIONAL MARKETS. The Company currently
has 11 different types of Practice Groups. However, only one of the
Company's 14 regional markets has more than four types of Practice
Groups currently operating. As a result, the Company believes that there
is a substantial opportunity to increase the number of Practice Groups
within each of its existing regional markets. The Company has begun to
add permanent and R&D contract services Practice Groups to selected
regional markets entered through the TeamAlliance Acquisition.
. HIRE ADDITIONAL REVENUE-GENERATING EMPLOYEES FOR EXISTING PRACTICE
GROUPS. The Company believes there is potential for revenue growth from
the addition of technical recruiting agents and account managers in
existing Practice Groups. The addition of these employees represents
increased opportunities to generate revenues by servicing a greater
number of current and prospective clients and IT professionals.
. OPEN ADDITIONAL LOCATIONS IN NEW REGIONAL TECHNOLOGY MARKETS. A key
element of the Company's growth strategy is to continue to enter new
regional markets with a concentration of high technology companies. The
Company currently has Practice Groups in 14 regional markets, including
Silicon Valley, the Research Triangle and certain other high technology
markets. The Company is currently considering entering other technology
markets, such as Atlanta, Boston and Dallas, and may in the future
consider further international expansion beyond London.
. ACQUIRE COMPLEMENTARY BUSINESSES. The Company intends to explore the
potential acquisition of businesses that would provide it with: (i) new
technology practices; (ii) strategically complementary businesses; (iii)
new geographical presences; or (iv) international recruiting
capabilities. For example, as a result of the TeamAlliance Acquisition,
the Company expanded its Practice Groups to include traditional IS
contract services and entered five new regional markets.
4
<PAGE>
THE OFFERING
Common Stock offered by the Company....... 1,666,667 shares
Common Stock offered by the Selling
Stockholders............................. 848,333 shares
Common Stock to be outstanding after the
Offering................................. 8,933,619 shares(1)
Use of proceeds........................... To repay outstanding indebtedness
and for working capital and other
general corporate purposes,
including possible acquisitions.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol.... HAKI
- --------
(1) Assumes the conversion of each outstanding share of Series A Preferred
Stock of the Company into approximately 1.04 shares of Common Stock upon
the closing of this Offering assuming an offering price of $12.00 per
share. See "Description of Capital Stock." Also assumes the retirement of
800,000 shares of the Company's Common Stock in satisfaction of certain
promissary notes. See "Certain Transactions." Excludes 2,438,186 shares of
Common Stock issuable upon exercise of outstanding stock options as of June
30, 1997 at a weighted average exercise price of $4.33 per share, and
250,000 shares of Common Stock issuable upon exercise of outstanding
warrants at an exercise price of $0.01 per share. Using the treasury stock
method, the outstanding options and warrants represent 1,510,590 shares
of Common Stock equivalents assuming an offering price of $12.00 per share.
Also excludes: (i) 300,000 shares of Common Stock reserved for future grant
under the Company's 1997 Stock Option Plan; (ii) 350,000 shares of Common
Stock reserved for future grant under the Company's IT Professional Plan;
and (iii) 150,000 shares of Common Stock reserved for future issuance under
the Company's Employee Stock Purchase Plan. See "Management--1997 Stock
Option Plan," "--Employee Stock Purchase Plan," "--IT Professional Plan"
and Note 8 of Notes to Consolidated Financial Statements.
5
<PAGE>
SUMMARY CONSOLIDATED AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------- PRO FORMA ---------------
1992 1993 1994 1995 1996 1996 (1) 1996 1997
------ ------ ------- ------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net revenues............ $4,361 $9,780 $15,968 $29,385 $50,571 $65,091 $22,740 $42,691
Gross profit............ 2,058 3,394 5,240 10,176 20,229 24,237 9,101 16,758
Income (loss) from
operations............. (27) 125 262 1,307 1,996 1,697 1,532 1,162
Net income (loss)....... (107) 28 33 682 1,361 475 1,028 555
Net income (loss) per
share (2).............. $(0.01) $ -- $ -- $ 0.09 $ 0.15 $ 0.05 $ 0.11 $ 0.06
Shares used in per share
computations........... 7,227 7,227 7,227 7,272 9,351 9,351 8,941 9,503
SELECTED OPERATING DATA
(AT PERIOD END):
Regional markets........ 1 1 3 5 14 14 6 14
Total employees (3)..... 40 58 64 141 327 327 181 348
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------------
ACTUAL PRO FORMA (4) AS ADJUSTED (5)
------- ------------- ---------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)................ $ (850) $ (850) $14,350
Total assets............................. 26,826 26,826 36,011
Long-term debt........................... 5,998 5,998 3,498
Redeemable convertible preferred stock... 9,900 -- --
Total stockholders' equity (deficit)..... (2,190) 7,710 25,410
</TABLE>
- --------
(1) The pro forma consolidated statement of operations data reflects the
combined operations of the Company and TeamAlliance as if the acquisition,
which was completed on December 2, 1996, had been completed as of January
1, 1996. See "Unaudited Pro Forma Condensed Combining Statement of Income."
(2) Computed on the basis described in Note 1 of Notes to Consolidated
Financial Statements.
(3) Total employees excludes IT professionals performing contract assignments
for clients.
(4) Adjusted to reflect the conversion of all outstanding shares of Preferred
Stock into Common Stock.
(5) Adjusted to reflect the sale of 1,666,667 shares of Common Stock by the
Company hereby and the application of the estimated net proceeds therefrom.
Also reflects the tender of 800,000 shares of the Company's Common Stock in
payment of certain outstanding promissory notes. See "Use of Proceeds" and
"Capitalization."
6
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to the
other information contained in this Prospectus before purchasing the shares of
Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from those projected in the forward-looking statements.
Factors that may cause such a difference include, but are not limited to,
those set forth in Risk Factors below and elsewhere in this Prospectus.
ABILITY TO ATTRACT AND RETAIN QUALIFIED IT PROFESSIONALS
The Company's success depends on its ability to attract and retain qualified
IT professionals with the technical skills and experience necessary to meet
its clients' requirements for technical personnel. Competition for individuals
with proven technical skills, particularly in the Windows, Unix, CAD and other
technology environments for which the Company provides services, is intense,
and the Company expects that competition for IT professionals will increase in
the future. Furthermore, IT professionals typically provide services on an
assignment-by-assignment basis and can terminate an assignment with the
Company at any time. The Company competes for such individuals with other
providers of technical staffing services, systems integrators, providers of
outsourcing services, computer consultants and temporary personnel agencies.
Many of the IT professionals who work with the Company also work with the
Company's competitors, and there can be no assurance that IT professionals
currently working on projects for the Company will not choose to work for
competitors on future assignments. There also can be no assurance that the
Company will be able to attract and retain qualified IT professionals in
sufficient numbers in the future. The Company's net revenues in any period are
related, among other factors, to the number of IT professionals it has on
staff and engaged on assignments. If the Company is unable to hire or retain
such personnel, the Company's business, operating results and financial
condition would be materially adversely affected. See "Business--Business
Strategy," "--IT Professionals" and "--Competition."
RISKS INHERENT IN ADDITION OF PRACTICE GROUPS AND EXPANSION INTO NEW MARKETS
The Company's growth depends on its ability to successfully expand existing
Practice Groups, add additional Practice Groups within its existing regional
markets and enter new regional markets. This expansion is dependent on a
number of factors, including the Company's ability to: attract, hire,
integrate and retain qualified revenue generating employees; develop, recruit
and maintain a base of qualified IT professionals within a regional market;
accurately assess the demand of a new market; and initiate, develop and
sustain corporate client relationships in each new regional market. There can
be no assurance that the addition of Practice Groups and entrance into new
regional markets will occur on a timely basis or achieve anticipated financial
results. The addition of new Practice Groups and entrance into new regional
markets typically results in increases in operating expenses, primarily due to
increased headcount. Expenses are incurred in advance of forecasted revenue,
and there is typically a delay before the Company's new recruiting personnel
and sales employees reach full productivity. If the Company is unable to add
Practice Groups or enter new regional markets in a cost-effective manner or if
those Practice Groups and regional markets do not achieve anticipated
financial results, the Company's business, operating results and financial
condition could be materially adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business--
Growth Strategy."
FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY
The Company's quarterly operating results have in the past and may in the
future fluctuate significantly depending on a number of factors, including but
not limited to: the rate of hiring and the productivity of revenue-generating
personnel; the availability of qualified IT professionals; changes in the
relative mix between the Company's contract services and permanent placement
services; changes in the pricing of the Company's
7
<PAGE>
services; the timing and rate of entrance into new regional markets and the
addition of practice groups; departures or temporary absences of key revenue-
generating personnel; the structure and timing of acquisitions; changes in the
demand for IT professionals; and general economic factors. In addition,
because the Company provides services on an assignment-by-assignment basis,
which clients can terminate at any time, there can be no assurance that
existing clients will continue to use the Company's services at historical
levels. Although the impact of seasonal factors will vary, the Company
experiences a certain amount of seasonality in its first quarter due primarily
to the number of holidays and the number of internal training and incentive
programs in the first quarter, which may reduce the number of days worked by
IT professionals and revenue-generating employees during such quarter. As a
result, the Company believes that period-to-period comparisons of its results
of operations are not necessarily meaningful and should not be relied upon as
any indication of future performance. In the event the Company's operating
results fall below the expectations of public market analysts and investors,
the price of the Company's Common Stock would likely be materially adversely
affected. Although the Company has experienced substantial revenue growth in
recent years, there can be no assurance that, in the future, the Company will
sustain revenue growth or profitability on a quarterly or annual basis at
historical levels. See "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
INTEGRATION OF TEAMALLIANCE
In December 1996, the Company acquired certain assets of TeamAlliance, which
was comprised of six affiliated but separate entities that were located in
five states. These management companies now operate as a separate practice
group within the Company's Contract Services Division. The integration of
TeamAlliance, its clients, IT professionals and employees has required a
significant amount of management time and attention, and has resulted in
significant integration-related expenses, including expenses associated with
training TeamAlliance employees and relocating certain TeamAlliance offices.
The Company expects that it may incur additional integration related expenses
in future periods, and there can be no assurance that the integration of
TeamAlliance will not involve disruptions or difficulties, such as departures
of clients, IT professionals or employees, resulting in a material adverse
impact on the Company's business, operating results and financial condition.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
DEPENDENCE ON KEY PERSONNEL
The Company's future business and operating results depend in significant
part upon the continued contributions of its key employees and senior
management personnel, many of whom would be difficult to replace. The loss or
temporary absence of any of the Company's senior management, significant
revenue generating employees, other key personnel and, in particular, Brenda
C. Hall, its Chief Executive Officer, or the inability to attract and retain
key employees or management personnel in the future, could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Management."
MANAGEMENT OF GROWTH
The Company has recently experienced a period of rapid growth that has
placed and will continue to place significant demands upon its management and
other resources. The Company's net revenues increased 72.1% from $29.4 million
in 1995 to $50.6 million in 1996, while headcount increased from 141 employees
to 327 employees in the same period. The Company's ability to effectively
manage future growth will require the Company to expand its operational,
financial and other internal systems. Implementing a new or expanded financial
and management information system can be time-consuming and expensive and
require significant management resources. There can be no assurance that the
Company's current personnel, systems, procedures and controls will be adequate
to support the Company's future operations or that any new system can be
implemented effectively. Any failure to manage its growth effectively could
have a material adverse effect on the Company's business, operating results
and financial condition. See "Business--Growth Strategy."
8
<PAGE>
RISKS OF ACQUISITIONS
A component of the Company's growth strategy is the acquisition of
complementary businesses. The successful implementation of this strategy is
dependent upon the Company's ability to identify suitable acquisition
candidates, obtain requisite financing, acquire such companies on suitable
terms and integrate their operations successfully with those of the Company.
To date, the Company has completed one acquisition and there can be no
assurance that the Company will be able to identify additional suitable
acquisition candidates or that the Company will be able to acquire such
candidates on favorable terms. Moreover, other providers of IT professional
services are also competing for acquisition candidates, which could result in
an increase in the price of acquisition targets and a diminished pool of
companies available for acquisition. Acquisitions also involve a number of
other risks, including adverse effects on the Company's reported operating
results from increases in amortized goodwill and interest expense, the
diversion of management attention and the subsequent integration of acquired
businesses. To the extent the Company seeks to acquire complementary
businesses for cash, the Company may be required to obtain additional
financing and there can be no assurance such financing will be available on
favorable terms, if at all. Due to all of the foregoing, acquisitions may have
a material adverse effect on the Company's business, operating results and
financial condition. In addition, if the Company issues stock to complete any
future acquisitions, existing stockholders will experience further ownership
dilution. See "Business--Growth Strategy."
INDUSTRY AND GEOGRAPHIC CONCENTRATION
The Company's business is dependent on the trends prevalent in, and the
continued growth and rate of change of, the high technology industry. In 1996,
substantially all of the Company's net revenues were derived by providing
services to clients in the high technology industry. In addition,
approximately 73.2% of the Company's net revenues in 1996 were derived from
services provided to clients located in Silicon Valley (56.9% on a pro forma
basis for the TeamAlliance Acquisition). A substantial deterioration in
general economic conditions in Silicon Valley or in the high technology
industry as a whole would materially and adversely affect the Company's
business, financial condition and operating results. See "Business--Clients."
HIGHLY COMPETITIVE MARKET
The IT staffing industry is highly competitive and fragmented and has low
barriers to entry. The Company competes for potential clients with providers
of outsourcing services, systems integrators, computer systems consultants,
other providers of IT staffing services and temporary personnel agencies. Many
of the Company's current and potential competitors have longer operating
histories, significantly greater financial and marketing resources, greater
name recognition and a larger installed base of IT professionals and clients
than the Company. In addition, many of these competitors, including numerous
smaller privately held companies, may be able to respond more quickly to
customer requirements and to devote greater resources to the marketing of
services than the Company. Because there are relatively low barriers to entry,
the Company expects that competition will increase in the future. Increased
competition could result in price reductions, reduced margins or loss of
market share, any of which could materially and adversely affect the Company's
business, operating results and financial condition. Further, there can be no
assurance that the Company will be able to compete successfully against
current and future competitors or that competitive pressures faced by the
Company will not have a material adverse effect on its business, operating
results and financial condition. See "Business--Competition."
CONCENTRATION OF OWNERSHIP BY PRINCIPAL STOCKHOLDERS
Upon completion of this Offering, the Company's principal stockholders,
Brenda C. Hall, Todd J. Kinion and entities affiliated with the Sprout Group,
will beneficially own approximately 70.8% of the Company's outstanding shares
of Common Stock (approximately 66.7% if the over-allotment option is exercised
in full). As a result, these stockholders as a group will be able to exercise
control over almost all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. This
concentration of ownership could have the effect of making it difficult for a
third party to acquire control of the
9
<PAGE>
Company and may discourage third parties from attempting to do so. See
"Management" and "Principal and Selling Stockholders."
LIABILITY RISKS
The Company is exposed to liability with respect to actions taken by its IT
professionals while on assignment, such as damages caused by errors of IT
professionals, misuse of client proprietary information or theft of client
property. The Company often indemnifies its clients from the foregoing.
Although the Company maintains insurance coverage, due to the nature of the
Company's assignments, and in particular the access by IT professionals to
client information systems and confidential information, and the potential
liability with respect thereto, there can be no assurance that such insurance
coverage will continue to be available on reasonable terms or that it will be
adequate to cover any such liability. The Company may be exposed to claims of
discrimination and harassment and other similar claims as a result of
inappropriate actions allegedly taken against IT professionals by corporate
clients. As an employer, the Company is also exposed to possible claims of
wrongful discharge and violations of immigration laws. Employment related
claims may result in negative publicity, litigation and liability for money
damages and fines. See "Business--Employees."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of substantial numbers of shares of Common Stock in the public market
after the Offering could adversely affect the market price of the Common
Stock. Upon completion of the Offering, the Company will have outstanding
8,933,619 shares of Common Stock. All of the 2,515,000 shares sold in this
Offering will be freely transferable as of the date of this Prospectus by
persons other than "affiliates" of the Company without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act") and an additional 28,550 shares held by an existing shareholder will be
eligible for sale in the public market in reliance on Rule 144(k) of the
Securities Act. The remaining 6,390,069 shares of Common Stock that will be
outstanding upon completion of this Offering (the "Restricted Shares") will be
held by officers, directors, employees, IT professionals and other
stockholders of the Company. The Restricted Shares were sold by the Company in
reliance upon exemptions from the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act") and are "restricted securities"
under the Securities Act. Certain holders of Restricted Shares have agreed not
to sell their shares without the prior written consent of Montgomery
Securities for a period of 180 days from the date of this Prospectus.
Beginning 180 days after commencement of the Offering unless earlier released,
in whole or in part, by Montgomery Securities, 6,343,981 Restricted Shares
that are subject to lock-up agreements will become eligible for sale in the
public markets subject to Rule 144 and Rule 701 under the Securities Act. The
remaining 46,088 Restricted Shares will become eligible for sale under Rule
144 at various dates thereafter as the holding period provisions of Rule 144
are satisfied. As of June 30, 1997, 2,438,186 shares were issuable upon
exercise of currently outstanding options. All holders of such options have
agreed pursuant to existing agreements with the Company not to sell or
otherwise transfer or dispose of any Common Stock for a period of 180 days
from the date of this Prospectus. In addition, certain holders of such options
have additionally agreed not to sell any Common Stock acquired without the
prior written consent of Montgomery Securities for a period of 180 days from
the date of this Prospectus. As of June 30, 1997, 250,000 shares were issuable
upon exercise of currently outstanding warrants, all of which are also subject
to the lock-up agreements described above and will become eligible for sale in
the public markets subject to Rule 144 beginning 180 days after commencement
of this Offering unless earlier released, in whole or in part, by Montgomery
Securities. Upon completion of this Offering, certain holders of 5,952,687
shares of Common Stock and securities convertible into or exercisable for
shares of Common Stock have certain registration rights under a registration
rights agreement among such holders and the Company and certain other
agreements. In addition, following completion of the Offering, the Company
intends to register under the Securities Act approximately 3,238,186 shares of
Common Stock subject to outstanding stock options or reserved for issuance
under the Company's 1997 Stock Option Plan, IT Professional Stock Option Plan
and Employee Stock Purchase Plan (the "Stock Plans") as well as stock options
granted outside the Stock Plans. See "Management--1997 Stock Option Plan," "--
IT Professional Plan," "--Employee Stock Purchase Plan," "Principal and
Selling Stockholders," "Description of Capital Stock--Registration Rights,"
"Shares Eligible for Future Sale" and "Underwriting."
10
<PAGE>
NO PRIOR TRADING MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Company's
Common Stock. There can be no assurance that an active trading market will
develop or be sustained after this Offering or that the market price of the
Company's Common Stock will not fall below the offering price. The initial
public offering price will be determined through negotiations among the
Company, the Selling Stockholders and the Representatives of the Underwriters
based on several factors and may not be indicative of the market price of the
Common Stock after this Offering. The market price of the shares of Common
Stock is likely to be highly volatile and may be significantly affected by
factors such as actual or anticipated fluctuations in the Company's operating
results, announcements of acquisitions by the Company or its competitors,
conditions or trends in the IT staffing industry or in technology stocks
generally, adoption of new tax and accounting standards affecting the IT
staffing industry, changes in financial estimates by securities analysts,
general market conditions and other factors. In addition, the technology
sector of the stock market has experienced in recent years significant price
and volume fluctuations. Because the Company's business is dependent on the
trends prevalent in, and the continued growth and rate of change of, the high
technology industry, these broad market fluctuations may adversely affect the
market price of the Company's Common Stock following this Offering. See "--
Industry and Geographic Concentration" and "Underwriting."
EFFECT OF CERTAIN CHARTER PROVISIONS; ANTI-TAKEOVER EFFECTS OF CERTIFICATE OF
INCORPORATION, BYLAWS, DELAWARE LAW
Upon completion of this Offering, the Company's Amended and Restated
Certificate of Incorporation (the "Certificate") and Bylaws and Delaware law
contain provisions that could have the effect of delaying, deferring or
preventing an unsolicited change in control of the Company, which may
adversely affect the market price of the Common Stock or the ability of
shareholders to participate in a transaction in which they might otherwise
receive a premium for their shares over the then-current market price. Such
provisions also may have the effect of preventing changes in the management of
the Company. These provisions provide that all stockholder action must be
taken at an annual or special meeting of the stockholders, that only the Board
of Directors may call special meetings of the stockholders and that the Board
of Directors be divided into three classes to serve for staggered three-year
terms. In addition, the Certificate authorizes the Board of Directors to issue
up to 10,000,000 shares of preferred stock ("Preferred Stock") without
shareholder approval and on such terms as the Board of Directors may
determine. Although no shares of Preferred Stock will be outstanding upon the
closing of this Offering and the Company has no present plans to issue any
shares of Preferred Stock, the rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of holders of any
Preferred Stock that may be issued in the future. In addition, the Company is
subject to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which could have the effect of delaying or preventing a
change of control of the Company. See "Description of Capital Stock--Preferred
Stock" and "--Anti-Takeover Effects of Provisions of the Certificate of
Incorporation, Bylaws and Delaware Law."
IMMEDIATE AND SUBSTANTIAL DILUTION
Investors participating in this Offering will incur immediate, substantial
dilution in net tangible book value per share of $10.21 from the initial
public offering price per share. To the extent outstanding options or warrants
to purchase the Company's Common Stock are exercised, there will be further
dilution. See "Dilution."
11
<PAGE>
THE COMPANY
Hall Kinion was incorporated in December 1991 and intends to reincorporate
in Delaware in July 1997. The Company's operations were located in the Silicon
Valley from inception and began expanding to additional regional markets in
late 1994. The Company currently provides specialized IT professionals on a
contract and permanent basis through 21 offices located in 14 major technology
centers in the United States and London.
In January 1996, entities affiliated with the Sprout Group ("Sprout")
purchased 1,600,000 shares of Series A Preferred Stock and warrants to
purchase an aggregate of up to 250,000 shares of Common Stock for an aggregate
purchase price of $10.0 million. In connection with this transaction, Brenda
C. Hall, the Company's Chief Executive Officer and a director of the Company,
and Todd J. Kinion, a former officer and a current director of the Company,
borrowed from the Company $3.0 million and $2.0 million, respectively,
pursuant to certain secured promissory notes. Ms. Hall and Mr. Kinion may pay
their respective promissory notes by tendering to the Company 480,000 and
320,000 shares of Common Stock, respectively. Ms. Hall and Mr. Kinion have
agreed to tender such shares in payment of the promissory notes upon
completion of this Offering. See "Certain Transactions."
The Company is organized into two divisions: Contract Services, which has
historically provided supplemental staffing to R&D departments of high
technology companies, and Permanent Placement, which provides IT professionals
for placement on a permanent basis. In December 1996, the Company completed
the TeamAlliance Acquisition for a cash payment of $4.2 million at the date of
acquisition and the issuance of 52,000 shares of the Company's Common Stock.
In addition, the Company has agreed to pay the principals an aggregate of an
additional $4.2 million in installments over a three-year period and to make
additional monthly installments during 1997 aggregating approximately $500,000
to certain management companies and their shareholders. With the TeamAlliance
Acquisition, the Company expanded its Contract Services Division to provide
supplemental IT professionals to IS departments of corporate clients. As a
result of the TeamAlliance Acquisition, the Company commenced operations in
five regional markets not previously served.
The Company's principal office is located at 19925 Stevens Creek Boulevard,
Cupertino, California 95014, and its telephone number is (408) 863-5600. The
Company's web site is located at www.hallkinion.com.
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,666,667 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$17.7 million (assuming an offering price of $12.00 per share) and after
deducting the underwriting discount and estimated offering expenses. The
Company expects to use approximately $7.3 million of the net proceeds to repay
outstanding indebtedness under its loan agreements with Comerica Bank--
California ("Comerica"), of which $4.4 million was incurred in connection with
the TeamAlliance Acquisition and the balance of such indebtedness was incurred
for working capital purposes. The Company also intends to repay a cash
overdraft in the amount of approximately $1.2 million. The Company intends to
use the remaining net proceeds for working capital and other corporate
purposes, including the possible acquisition of complementary businesses. The
Company has no current plans, agreements or commitments and is not currently
engaged in any negotiations with respect to any such acquisitions. Pending
such uses, the Company plans to invest the net proceeds in investment grade
interest-bearing securities.
Under its loan agreements with Comerica, the Company has outstanding
revolving loans, which bear interest at the bank's prime rate (8.5% as of June
30, 1997) plus 0.5%, and term loans, which bear interest at the bank's prime
rate plus 1.0% and become due and payable on November 15, 1998. As of June 30,
1997, borrowings under these loan agreements were $7.3 million, consisting of
$3.8 million under the revolving credit facility and $3.5 million under the
term loan facility.
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Stockholders.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends in the foreseeable future.
In addition, the Company's revolving line of credit agreement currently
restricts the Company's ability to pay cash dividends without the bank's
consent.
13
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company as of June 30, 1997: (i) on an actual basis; (ii) on a pro forma basis
giving effect to the conversion of all outstanding shares of Preferred Stock
into Common Stock; and (iii) as adjusted to reflect the receipt and the
application of the estimated net proceeds from this Offering of $17.8 million
at an assumed initial public offering price of $12.00 per share after
deducting the estimated underwriting discount and offering expenses, and the
tender of 800,000 shares of the Company's Common Stock in payment of certain
outstanding stockholder notes receivable.
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------
PRO AS
ACTUAL FORMA ADJUSTED
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt (1)................................. $ 7,400 $ 7,400 $ 1,385
======= ======= =======
Long-term debt (2).................................. $ 5,998 $ 5,998 $ 3,498
------- ------- -------
Redeemable convertible preferred stock: 1,600,000
shares, $0.001 par value, authorized, actual;
10,000,000 shares, authorized, pro forma and as
adjusted; 1,600,000 shares outstanding, actual; and
no shares outstanding, pro forma and as adjusted
(3)................................................ 9,900 -- --
------- ------- -------
Stockholders' equity (deficit):
Common stock; 10,000,000 shares, $0.001 par value,
authorized, actual; 100,000,000 shares, authorized,
pro forma and as adjusted; 6,400,288 shares
outstanding, actual; 8,066,952 shares outstanding,
pro forma; and 8,933,619 shares outstanding, as
adjusted (4)....................................... 521 10,421 28,111
Stockholder notes receivable........................ (5,496) (5,496) (6)
Accumulated translation adjustment.................. 9 9 9
Retained earnings (deficit)......................... 2,776 2,776 (2,704)
------- ------- -------
Total stockholders' equity (deficit).............. (2,190) 7,710 25,410
------- ------- -------
Total capitalization................................ $13,708 $13,708 $28,908
======= ======= =======
</TABLE>
- --------
(1) Short-term debt includes current portion of long-term debt, cash overdraft
and the line of credit.
(2) See Note 4 of Notes to Consolidated Financial Statements.
(3) See Note 7 of Notes to Consolidated Financial Statements.
(4) See Note 8 of Notes to Consolidated Financial Statements.
14
<PAGE>
DILUTION
The pro forma net tangible book value of the Company's Common Stock as of
June 30, 1997 was $(1.7) million, or approximately $(0.21) per share. Pro
forma net tangible book value per share represents the amount of the Company's
stockholders' equity, less intangible assets, divided by the pro forma number
of shares of Common Stock outstanding after giving effect to the conversion of
all outstanding shares of Preferred Stock into shares of Common Stock upon
completion of this Offering.
Net tangible book value dilution per share represents the difference between
the amount per share paid by purchasers of shares of Common Stock in this
Offering made hereby and the pro forma net tangible book value per share of
Common Stock immediately after completion of this Offering. After giving
effect to the sale of 1,666,667 shares of Common Stock in this Offering at an
assumed offering price of $12.00 per share and the application of the
estimated net proceeds therefrom, the pro forma net tangible book value of the
Company as of June 30, 1997 would have been $16.0 million, or $1.79 per share.
This represents an immediate increase in net tangible book value of $2.00 per
share to existing stockholders and an immediate dilution in net tangible book
value of $10.21 per share to purchasers of Common Stock in this Offering.
Investors participating in this Offering will incur immediate, substantial
dilution. This is illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed public offering price per share...................... $12.00
Pro forma net tangible book value per share as of June 30,
1997...................................................... $(0.21)
Increase per share attributable to new investors........... 2.00
------
Pro forma net tangible book value per share after the
Offering.................................................... 1.79
------
Net tangible book value dilution per share to new investors.. $10.21
======
</TABLE>
The following table sets forth as of June 30, 1997, after giving effect to
the conversion of all outstanding shares of Preferred Stock into Common Stock
upon completion of this Offering, the difference between the existing
stockholders and the purchasers of shares in the Offering with respect to the
number of shares purchased from the Company, the total consideration paid and
the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders
(1)(2).................... 7,266,952 81.3% $10,421,000 34.3% $ 1.43
New stockholders........... 1,666,667 18.7 20,000,000 65.7 $12.00
--------- ----- ----------- -----
Totals (2)............... 8,933,619 100.0% $30,421,000 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) After giving effect to the tender of 800,000 shares of the Company's
Common Stock in payment of certain outstanding stockholder notes
receivable.
(2) The sale of shares by the Selling Stockholders in the Offering will cause
the number of shares held by the existing stockholders to be reduced to
6,418,619 or approximately 71.8% of the total number of shares, and will
increase the number of shares to be purchased by new stockholders to
2,515,000 or 28.2% of the total number of shares.
As of June 30, 1997, there were options outstanding to purchase a total of
2,438,186 shares of Common Stock at a weighted average exercise price of $4.33
per share under the Company's 1997 Stock Option Plan and warrants to purchase
250,000 shares of Common Stock at an exercise price of $0.01 per share. To the
extent outstanding options or warrants are exercised, there will be further
dilution to new investors. See "Management--1997 Stock Option Plan," "Certain
Transactions" and Note 8 of Notes to Consolidated Financial Statements.
15
<PAGE>
SELECTED CONSOLIDATED AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated and pro forma consolidated financial
data should be read in conjunction with the Company's consolidated and pro
forma consolidated financial statements and related notes thereto and with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, included elsewhere in this Prospectus. The consolidated statement
of operations data for the years ended December 31, 1994, 1995 and 1996, and
the consolidated balance sheet data at December 31, 1995 and 1996 are derived
from audited consolidated financial statements included elsewhere in this
Prospectus. The pro forma consolidated statement of operations data for the
year ended December 31, 1996 is derived from the unaudited pro forma condensed
combining statement of income included elsewhere in this Prospectus. The
consolidated balance sheet data at December 31, 1992 and 1993 and the
consolidated statement of operations data for the years ended December 31,
1992 and 1993 are derived from unaudited consolidated financial statements not
included in this Prospectus. The consolidated balance sheet data at December
31, 1994 is derived from audited consolidated financial statements not
included in this Prospectus. The consolidated balance sheet data at June 30,
1997 and the consolidated statement of operations data for the six months
ended June 30, 1996 and 1997 are derived from unaudited financial statements
included elsewhere in this Prospectus. The unaudited consolidated financial
statements have been prepared on the same basis as the audited consolidated
financial statements and, in the opinion of management, contain all
adjustments, consisting of only normal recurring adjustments, necessary for
the fair presentation of the results of operations for such period.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, PRO FORMA JUNE 30,
----------------------------------------- --------- ---------------
1992 1993 1994 1995 1996 1996 (1) 1996 1997
------ ------ ------- ------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net revenues:
Contract services...... $3,070 $8,376 $14,222 $25,660 $42,254 $56,774 $19,039 $37,422
Permanent placement.... 1,291 1,404 1,746 3,725 8,317 8,317 3,701 5,269
------ ------ ------- ------- ------- ------- ------- -------
Total net revenues..... 4,361 9,780 15,968 29,385 50,571 65,091 22,740 42,691
Cost of contract
services............... 2,303 6,386 10,728 19,209 30,342 40,854 13,639 25,933
------ ------ ------- ------- ------- ------- ------- -------
Gross profit............ 2,058 3,394 5,240 10,176 20,229 24,237 9,101 16,758
Operating expenses:
Selling, general and
administrative
expenses.............. 2,085 3,269 4,978 8,869 17,412 21,719 7,569 15,596
Other operating
expenses.............. -- -- -- -- 821 821 -- --
------ ------ ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 2,085 3,269 4,978 8,869 18,233 22,540 7,569 15,596
------ ------ ------- ------- ------- ------- ------- -------
Income (loss) from
operations............. (27) 125 262 1,307 1,996 1,697 1,532 1,162
Other income (expense),
net.................... (20) (44) (203) (156) 369 (778) 183 (197)
------ ------ ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes........... (47) 81 59 1,151 2,365 919 1,715 965
Income taxes............ 60 53 26 469 1,004 444 687 410
------ ------ ------- ------- ------- ------- ------- -------
Net income (loss)....... $ (107) $ 28 $ 33 $ 682 $ 1,361 $ 475 $ 1,028 $ 555
====== ====== ======= ======= ======= ======= ======= =======
Net income (loss) per
share (2).............. $(0.01) $ -- $ -- $ 0.09 $ 0.15 $ 0.05 $ 0.11 $ 0.06
====== ====== ======= ======= ======= ======= ======= =======
Shares used in per share
computation............ 7,227 7,227 7,227 7,272 9,351 9,351 8,941 9,503
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------- JUNE 30,
1992 1993 1994 1995 1996 1997
---- ------ ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)........ $135 $ 251 $ (209) $ (114) $ 189 $ (850)
Total assets..................... 780 1,700 2,572 5,680 22,994 26,826
Long-term debt................... 71 244 -- -- 6,738 5,998
Redeemable convertible preferred
stock........................... -- -- -- -- 9,900 9,900
Total stockholders' equity
(deficit)....................... 198 226 259 941 (2,748) (2,190)
</TABLE>
- -------
(1) The pro forma consolidated statement of operations data reflects the
combined operations of the Company and TeamAlliance as if the acquisition,
which was completed on December 2, 1996, had been completed on January 1,
1996. See "Unaudited Pro Forma Condensed Combining Statement of Income."
(2) Computed on the basis described in Note 1 of Notes to Consolidated
Financial Statements.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Hall, Kinion & Associates, Inc. provides specialized IT professionals in 14
major technology centers located throughout the United States and in London.
The Company is organized into two divisions: Contract Services, which has
historically provided supplemental IT professionals to R&D departments of high
technology companies, and Permanent Placement, which places IT professionals
in permanent positions. With the acquisition of TeamAlliance in December 1996,
the Company expanded its Contract Services Division to provide IT
professionals to IS departments of corporate clients through a new IS Practice
Group.
During 1996, revenues from the Contract Services and Permanent Placement
Divisions accounted for 83.6% and 16.4% of net revenues, respectively. If the
TeamAlliance Acquisition had occurred on January 1, 1996, net revenues on a
pro forma basis for the Contract Services and Permanent Placement Divisions
would have accounted for 87.2% and 12.8% of 1996 net revenues, respectively.
During the six months ended June 30, 1997, revenues from the Contract
Services and Permanent Placement Divisions accounted for 87.7% and 12.3% of
net revenues, respectively.
The Company's net revenues are derived from hourly billings of IT
professionals performing contract assignments and fees received for permanent
placements. For contract services, assignments generally last from three to
nine months and revenues are recognized as services are provided. For its
permanent placement IT professionals, the Company receives a fee upon
placement of the candidate that is usually structured as a percentage of the
placed IT professional's first-year annual compensation. Permanent placement
revenues from these fees are recognized when the IT professional commences
employment.
Since late 1994, the Company has experienced rapid growth by adding
additional sales and recruiting employees, developing new Practice Groups and
entering new regional markets. As of December 31, 1994, the Company had 64
employees and seven Practice Groups in three regional markets. As of December
31, 1996, the Company had 327 employees and 42 Practice Groups in 14 regional
markets. During this two-year period, net revenues increased from $16.0
million to $50.6 million. Although contributing to the increase in net
revenues, the addition of new Practice Groups and the entry into new regional
markets resulted in substantial increases in operating expenses, primarily due
to increased headcount. These expenses are incurred in advance of any
recognized revenue and there is often a delay before the Company's new
recruiting personnel and sales employees reach full productivity.
The Company's gross profit margins are affected by changes in the mix of
services provided between Contract Services and Permanent Placement.
Consistent with industry practice, the Company recognizes all costs related to
permanent placement revenues as operating expenses. Accordingly, all costs of
revenues, which include compensation, statutory and other benefits, including
vacation days of IT professionals, and other direct costs of providing
services to clients, are associated with contract services. Because the
Company reports 100% gross margin for permanent placement revenues, changes in
the mix between permanent placement and contract services revenues can have a
significant effect on the Company's gross margins and operating expenses.
In December 1996, the Company completed the TeamAlliance Acquisition for a
cash payment of $4.2 million at the date of acquisition and the issuance of
52,000 shares of the Company's Common Stock. In addition, the Company has
agreed to pay the principals an aggregate of an additional $4.2 million in
installments over a three-year period and to make additional monthly
installments aggregating $500,000 to certain management companies and their
shareholders during 1997. With the acquisition of TeamAlliance, the Company
entered five new regional markets. The acquisition was accounted for under the
purchase method of accounting and, accordingly, the purchase price in excess
of the net tangible book value was allocated to goodwill. Such goodwill is
being amortized over 30 years. See Notes 1 and 2 of Notes to Consolidated
Financial Statements.
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth as a percentage of net revenues, except as
otherwise noted, the Company's results of operations for the periods shown:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
--------------------- ----------------
1994 1995 1996 1996 1997
----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C>
Net revenues:
Contract services............... 89.1 % 87.3 % 83.6% 83.7% 87.7 %
Permanent placement............. 10.9 12.7 16.4 16.3 12.3
----- ----- ----- ------- -------
Total net revenues............ 100.0 100.0 100.0 100.0 100.0
Cost of contract services......... 67.2 65.4 60.0 60.0 60.7
----- ----- ----- ------- -------
Gross profit(1)................... 32.8 34.6 40.0 40.0 39.3
Selling, general administrative
expenses......................... 31.2 30.2 34.4 33.3 36.5
Other operating expenses.......... -- -- 1.6 -- --
----- ----- ----- ------- -------
Income from operations............ 1.6 4.4 4.0 6.7 2.8
Other income (expense), net....... (1.3) (0.5) 0.7 0.8 (0.5)
----- ----- ----- ------- -------
Income before income taxes........ 0.3 % 3.9 % 4.7% 7.5% 2.3 %
===== ===== ===== ======= =======
</TABLE>
- --------
(1) Gross profit for contract services excluding permanent placement revenues
(as a percentage of net contract services revenues) was 24.6%, 25.1% and
28.2% for years ended December 31, 1994, 1995 and 1996, respectively, and
28.4% and 30.7% for the six months ended June 30, 1996 and 1997,
respectively.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net revenues. Net revenues increased $19.9 million, or 87.7%, from $22.7
million for the six months ended June 30, 1996, to $42.7 million for the six
months ended June 30, 1997. The Company's net revenues from contract services
increased by $18.4 million, or 96.6%, and net revenues from permanent
placements increased by $1.6 million, or 42.4%, in the first half of 1997 from
the first half of 1996. The increase in revenue from contract services was
primarily due to revenues associated with the TeamAlliance Acquisition, growth
in existing regional markets including the addition of new Practice Groups,
and to a lesser extent, an increase in average hourly billing rates charged
for the Company's IT professionals. The Company also realized an increase in
revenues from permanent placements due primarily to the addition of revenues
from regional markets entered in 1996 and growth in sales within existing
regional markets.
Gross profit. Gross profit increased $7.7 million, or 84.1%, from $9.1
million for the first six months of 1996 to $16.8 million for the first six
months of 1997. As a percentage of net revenues, gross profits decreased to
39.3% in the first half of 1997 from 40.0% in the first half of 1996. This
decrease was primarily due to a change in the mix between contract services
and permanent placements. Contract services revenues increased as a percentage
of net revenues from 83.7% in the first six months of 1996 to 87.7% in the
first six months of 1997, while permanent placement revenues decreased as a
percentage of net revenues from 16.3% in the first half of 1996 to 12.3% in
the first half of 1997. Permanent placement revenues decreased as a percentage
of net revenues due primarily to the addition of the TeamAlliance operations.
Gross profit for contract services excluding permanent placement revenues
(as a percentage of net contract services revenues) increased to 30.7% in the
first six months of 1997 from 28.4% in the first six months of 1996. This
increase was primarily due to an increase in average hourly billing rates
charged for the Company's IT professionals.
Operating expenses. Operating expenses increased $8.0 million, or 106.1%,
from $7.6 million for the six months ended June 30, 1996 to $15.6 million for
the six months ended June 30, 1997. As a percentage of net revenues, operating
expenses increased to 36.5% in the first half of 1997 from 33.3% in the first
half of 1996.
18
<PAGE>
This increase was primarily due to increased headcount and operating expenses
from the integration of the TeamAlliance operations, including training costs
and office relocation costs incurred in the Houston, Tampa and Chicago
regional markets and in connection with relocating the Company's corporate
headquarters to Cupertino, California. To a lesser extent, operating expenses
increased due to expenses incurred from the addition of a permanent placement
Practice Group in Houston and the opening of a new office in Foster City,
California.
Other income (expense), net. Other expense was $197,000 for the first six
months of 1997 compared to other income of $183,000 for the first six months
of 1996. This decrease in other income was primarily due to an increase in
interest expense to $345,000 for the first six months of 1997 compared to
$29,000 in the first six months of 1996. This expense primarily reflects
indebtedness incurred in connection with the TeamAlliance Acquisition and for
additional working capital purposes. The Company's interest expense is
partially offset by interest income from certain secured promissory notes of
Ms. Hall and Mr. Kinion.
Income Taxes. Income taxes as a percentage of income before taxes were 42.5%
and 40.1% for the six month periods ending June 30, 1997 and June 30, 1996,
respectively. The Company's income taxes as a percentage of income before
taxes varies somewhat from period to period due primarily to changes in
nondeductible expenses.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net revenues. Net revenues increased $21.2 million, or 72.1%, to $50.6
million in 1996 from $29.4 million in 1995. The Company's net revenues from
contract services increased by $16.6 million, or 64.7%, and net revenues from
permanent placements increased by $4.6 million, or 123.3%, in 1996 from 1995.
The increase in revenues was primarily due to growth in sales within existing
regional markets, including a full year of revenue from the Portland and
Denver regional markets which the Company entered in 1995. To a lesser extent,
revenues increased due to expansion into additional regional markets,
including, with respect to contract services, one month of net revenues from
the TeamAlliance operations. During 1996, the Company expanded into Austin
(April), Phoenix (July), Raleigh (September) and London (November). Due to the
delay typically experienced by the Company before new employees reach full
productivity, the Company did not recognize significant revenues from these
regional markets in 1996. As a result, the number of Company employees
(excluding IT professionals) increased by 132.0% in 1996, while net revenues
increased by only 72.1%. In addition, in December 1996 the Company entered the
New York City, Chicago, Houston, Orlando and Tampa regional markets, as a
result of the TeamAlliance Acquisition.
Gross profit. Gross profit increased $10.0 million, or 98.8%, to $20.2
million in 1996 from $10.2 million in 1995. As a percentage of net revenues,
gross profit increased to 40.0% in 1996 from 34.6% in 1995. This increase as a
percentage of net revenues was primarily due to a change in the mix between
contract services and permanent placements. Contract services decreased as a
percentage of net revenues from 87.3% in 1995 to 83.6% in 1996, while
permanent placement increased as a percentage of net revenues from 12.7% in
1995 to 16.4% in 1996.
Gross profit for contract services excluding permanent placement revenues
(as a percentage of net contract services revenues) increased to 28.2% in 1996
from 25.1% in 1995. This increase was due to an increase in average hourly
billing rates charged for the Company's IT professionals beginning in late
1995.
Operating expenses. Operating expenses increased $9.4 million, or 105.6%, to
$18.2 million in 1996 from $8.9 million in 1995. As a percentage of net
revenues, operating expenses increased to 36.0% in 1996 from 30.2% in 1995.
This increase was primarily due to an increase in permanent placement revenues
as a percentage of total net revenues, as all expenses associated with
permanent placement revenues are recognized as operating expenses. In
addition, the increase was the result of a substantial increase in new sales
employees, who are typically less productive in their first year, and the
Company's opening of Practice Groups in four additional regional markets in
1996.
19
<PAGE>
Other operating expenses. In 1996, the Company incurred other operating
expenses of $821,000. Of this amount, approximately $370,000 was associated
with reserves for pending litigation and approximately $270,000 was associated
with severance obligations to former executive officers of the Company.
Other income (expense), net. During 1996, the Company reported interest
income net of expense of $369,000 as compared to interest expense of $156,000
in 1995. This income reflects the investment of proceeds received from the
Company's sale of redeemable convertible preferred stock in January 1996 and
the repayment of the outstanding balance on the Company's credit line.
Income taxes. Income taxes as a percentage of income before taxes increased
to 42.5% in 1996 from 40.7% in 1995. This increase was primarily due to
certain nondeductible expenses incurred by the Company in the fourth quarter
of 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net revenues. Net revenues increased $13.4 million, or 84.0%, to $29.4
million in 1995 from $16.0 million in 1994. The Company's net revenues from
contract services increased by $11.4 million, or 80.4%, and net revenues from
permanent placements increased by $2.0 million, or 113.3%, in 1995 from 1994.
This increase resulted primarily from internal growth attributable to the
addition of new specialized Practice Groups, the Company's initial expansion
outside of California and increased net revenues for permanent placement
services. During 1995, the Company expanded its operations into Denver
(November) and Portland (July). During November 1994, the Company entered the
Seattle regional market. Due to the delay typically experienced by the Company
before new employees reach full productivity, the Company did not recognize
significant revenues from those regional markets in 1995. As a result, the
number of Company employees (excluding IT professionals) increased by 120.0%
in 1995, while net revenues increased by only 84.0%.
Gross profit. Gross profit increased $4.9 million, or 94.2%, to $10.2
million in 1995 from $5.2 million for 1994. As a percentage of net revenues,
gross profit increased to 34.6% in 1995 from 32.8% in 1994. This increase was
primarily due to a change in the mix between contract services and permanent
placements. Contract services decreased as a percent of net revenues from
89.1% in 1994 to 87.3% in 1995, while permanent placements increased as a
percent of net revenues from 10.9% in 1994 to 12.7% in 1995.
Gross profit for contract services excluding permanent placement revenues
(as a percentage of net contract services revenues) increased to 25.1% in 1995
from 24.6% in 1994.
Operating expenses. Operating expenses increased $3.9 million, or 78.2%, to
$8.9 million in 1995 from $5.0 million in 1994. As a percentage of net
revenues, operating expenses decreased to 30.2% in 1995 from 31.2% in 1994.
This decline was primarily attributable to the Company's ability to allocate
its costs over a much greater revenue base. However, this operating leverage
was partially offset by a significant increase in new employees, and the costs
associated with the Company's entrance into the Denver and Portland regional
markets during 1995.
Income taxes. Income taxes as a percentage of income before taxes decreased
to 40.7% in 1995 from 44.1% in 1994. This decrease was attributable to the
effect of nondeductible expenses which had a greater proportional impact on
the tax provision in 1994 than in 1995.
20
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following tables set forth certain unaudited quarterly consolidated
statement of operations data, both in dollar amount and as a percentage of
total net revenues, for each of the ten quarters ended June 30, 1997. In the
opinion of management, this information has been presented on the same basis
as the audited consolidated financial statements appearing elsewhere in this
Prospectus, and all necessary adjustments, consisting only of normal recurring
adjustments, have been included in the amounts stated below to present fairly
the unaudited quarterly results when read in conjunction with the audited
consolidated financial statements of the Company and related notes thereto.
The operating results for any quarter should not be relied upon as any
indication of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1995 1995 1996 1996 1996 1996 1997 1997
-------- -------- --------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Contract services...... $4,364 $5,491 $7,169 $8,636 $8,628 $10,411 $10,275 $12,940 $17,037 $20,385
Permanent placement.... 637 769 1,076 1,243 1,668 2,033 2,109 2,507 2,156 3,113
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Total net revenues.... 5,001 6,260 8,245 9,879 10,296 12,444 12,384 15,447 19,193 23,498
Cost of contract
services............... 3,359 4,227 5,299 6,324 6,213 7,426 7,399 9,304 12,020 13,913
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Gross profit............ 1,642 2,033 2,946 3,555 4,083 5,018 4,985 6,143 7,173 9,585
Selling, general and
administrative
expenses............... 1,638 1,900 2,369 2,962 3,450 4,119 4,220 5,623 7,064 8,532
Other operating
expenses............... -- -- -- -- -- -- 721 100 -- --
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Income from operations.. 4 133 577 593 633 899 44 420 109 1,053
Net income (loss)....... $ (22) $ 64 $ 326 $ 314 $ 416 $ 612 $ 100 $ 233 $ 20 $ 535
====== ====== ====== ====== ====== ======= ======= ======= ======= =======
Net income (loss) per
share (1).............. $ -- $ 0.01 $ 0.05 $ 0.04 $ 0.05 $ 0.06 $ 0.01 $ 0.02 $ -- $ 0.06
====== ====== ====== ====== ====== ======= ======= ======= ======= =======
Shares used in per share
computation............ 7,227 7,227 7,227 7,412 8,447 9,420 9,523 9,523 9,506 9,509
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1995 1995 1996 1996 1996 1996 1997 1997
-------- -------- --------- -------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Contract services...... 87.3 % 87.7% 86.9% 87.4% 83.8% 83.7% 83.0% 83.8% 88.8% 86.8%
Permanent placement.... 12.7 12.3 13.1 12.6 16.2 16.3 17.0 16.2 11.2 13.2
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Total net revenues...... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of contract
services............... 67.2 67.5 64.3 64.0 60.3 59.7 59.7 60.2 62.6 59.2
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Gross profit............ 32.8 32.5 35.7 36.0 39.7 40.3 40.3 39.8 37.4 40.8
Operating expenses...... 32.7 30.4 28.7 30.0 33.5 33.1 34.1 36.4 36.8 36.3
Other operating expenses -- -- -- -- -- -- 5.8 0.6 -- --
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Income from operations.. 0.1 2.1 7.0 6.0 6.2 7.2 0.4 2.8 0.6 4.5
Net income (loss)....... (0.4)% 1.0% 4.0% 3.2% 4.0% 4.9% 0.8% 1.5% 0.1% 2.3%
====== ====== ====== ====== ====== ======= ======= ======= ======= =======
Gross profit: contract
services (2)........... 23.0 % 23.0% 26.1% 26.8% 28.0% 28.7% 28.0% 28.1% 29.4% 31.7%
</TABLE>
- --------
(1) See Note 1 of Notes to Consolidated Financial Statements.
(2) Represents gross profit for contract services (excluding permanent
placement revenues) as a percentage of net contract services revenues.
The Company's quarterly operating results have in the past and may in the
future fluctuate significantly depending on a number of factors, including but
not limited to: the rate of hiring and the productivity of additional revenue-
generating personnel; the availability of qualified IT professionals; changes
in the relative mix
21
<PAGE>
between the Company's contract and permanent services; changes in the pricing
of the Company's services; the timing and rate of entrance into new regional
markets and addition of Practice Groups; temporary absences of key revenue-
generating personnel; the structure and timing of acquisitions; changes in the
demand for IT professionals; and general economic factors, among others. See
"Risk Factors--Fluctuations in Quarterly Results; Seasonality."
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirement is to fund working capital. The
Company has utilized various sources to fund this working capital including
cash flow from internal operations, bank credit lines and the sale of
preferred stock.
During 1996, 1995 and 1994, the Company used cash in operations of
approximately $1.6 million, $193,000 and $180,000, respectively, and $1.2
million for the six months ended June 30, 1997. The principal use of cash
during each of these periods was to support growth in accounts receivable
resulting from the Company's growth in net revenues and to fund operating
expenses associated with entering new markets and adding Practice Groups. In
the first six months of 1997, the Company experienced an increase in accounts
receivable in part from TeamAlliance, which was purchased in December 1996. In
connection with this acquisition, the Company did not purchase the existing
accounts receivable balances. This growth was financed using external sources,
such as bank financing and the sale of preferred stock and internal sources,
including net income and accrued expenses. The Company pays its IT
professionals on a weekly basis, while corporate clients are generally billed
at the end of the applicable pay period. Corporate clients typically remit
payments 30 to 40 days after invoice date. These working capital requirements
are somewhat mitigated by permanent placement revenues as the sales
commissions associated with such revenues are not paid until fees are
collected from the Company's client.
During 1996, 1995 and 1994, the Company made capital expenditures of $2.6
million, $634,000 and $332,000, respectively, and $963,000 during the six
months ended June 30, 1997. In October 1996, the Company purchased a corporate
training facility in Park City, Utah. The purchase price consisted of $1.0
million in cash plus a note payable to the seller in the amount of $1.1
million. The note bears interest at 8.75% per annum, matures in the year 2026
and requires installments of principal and interest totaling $9,023 each
month. The note is fully secured by a deed of trust against the property. See
Note 3 of Notes to Consolidated Financial Statements.
In December 1996, the Company completed the TeamAlliance Acquisition for a
cash payment of $4.2 million at the date of acquisition and the issuance of
52,000 shares of the Company's Common Stock. In addition, the Company has
agreed to pay the principals an aggregate of an additional $4.2 million in
installments over a three-year period and to make additional monthly
installments aggregating approximately $500,000 to certain management
companies and their shareholders during 1997. The Company financed the cash
portion of the purchase price with available borrowings under the term loan
facility. See Note 2 of Notes to Consolidated Financial Statements.
In January 1996, entities affiliated with the Sprout Group ("Sprout")
purchased 1,600,000 shares of Series A Preferred Stock and warrants to
purchase an aggregate of up to 250,000 shares of Common Stock. In connection
with this transaction, Brenda C. Hall, the Company's Chief Executive Officer
and a director of the Company, and Todd J. Kinion, a former officer and a
current director of the Company, borrowed from the Company $3.0 million and
$2.0 million, respectively, pursuant to secured promissory notes. Each of
these promissory notes becomes due and payable in January 2001 or upon the
occurrence of certain events, including the closing of this Offering. Ms. Hall
and Mr. Kinion may pay their respective promissory notes by tendering to the
Company 480,000 and 320,000 shares of Common Stock, respectively. Ms. Hall and
Mr. Kinion have agreed to tender such shares in payment of the promissory
notes upon completion of this Offering. See "Certain Transactions."
At June 30, 1997, the Company had $161,000 in cash and cash equivalents and
$850,000 of negative working capital. The Company has a term loan and
revolving line of credit facility enabling the Company to
22
<PAGE>
borrow a stated percentage of eligible accounts receivable up to a maximum of
$12.0 million. As of June 30, 1997, borrowings under these loan agreements
were $7.3 million, consisting of $3.8 million under the revolving credit
facility and $3.5 million under the term loan. All borrowings under these loan
agreements are secured by the assets of the Company. The term loan bears
interest at the bank's prime rate plus 1.0% (9.5% in total at June 30, 1997),
and the revolving line of credit bears interest at the bank's prime rate plus
0.5%. As of June 30, 1997, the Company also had a cash overdraft of $1.2
million. The Company intends to repay all borrowings under these facilities
and the cash overdraft using the proceeds from this Offering. See Note 4 of
Notes to Consolidated Financial Statements.
The Company believes that the proceeds from this Offering together with cash
flow from operations and borrowings under the Company's credit facility, or
other credit facilities that may become available to the Company in the
future, will be adequate to meet the Company's presently anticipated working
capital requirements for at least the next 18 months. The Company's estimate
of the period of time the proceeds of this Offering will fund its working
capital requirements is a forward-looking statement that is subject to risks
and uncertainties. Actual results could differ from those indicated as a
result of a number of factors, including the use of such proceeds to fund the
acquisition of complementary businesses. The Company has no current plans,
agreements or commitments and is not currently engaged in any negotiations
with respect to any acquisitions. See "Use of Proceeds."
23
<PAGE>
BUSINESS
Hall, Kinion & Associates, Inc. is a leading provider of specialized IT
professionals on a contract and permanent basis in 14 technology centers
located throughout the United States and in London. The Company provides its
services primarily to high technology companies, such as software developers,
computer systems manufacturers and telecommunications suppliers, primarily for
use in their development of next generation products. These companies require
highly skilled technical personnel in their engineering, product development
and quality assurance functional areas (collectively, "R&D departments"). To
meet the specialized needs of these clients, the Company provides its services
through distinct Practice Groups organized around specific technologies (such
as Windows, Unix or CAD) frequently used by such clients. The Company believes
that this specialization enables it to respond rapidly to its clients and
provide leading-edge technology assignments for its IT professionals. In 1996,
the Company placed contract and permanent professionals with a broad range of
high technology clients, including Borland, Cisco Systems, Microsoft, Oracle
and numerous emerging growth technology clients, with no single client
representing more than 5.0% of net revenues. With the TeamAlliance Acquisition
in December 1996, the Company expanded its client base and service offerings
to include traditional IT professional services to IS departments for
corporate clients. The Company believes that the IS business complements its
core R&D business and allows the Company to further leverage its specialized
service offerings and its national presence.
INDUSTRY BACKGROUND
The high technology industry continues to experience substantial growth as
constant innovation, such as open and distributed computing, client/server
technology, the Internet, relational databases and object-oriented
programming, shortens product lifecycles and accelerates the demand for
computer-related products. These trends, combined with the intense competition
faced by high technology companies, have put considerable pressure on such
companies to shorten the time-to-market of their products. The development of
these next generation products often requires highly specialized technical
talent which may not be available internally. This need for IT professionals
is particularly critical during the months or year before release of a new
software or hardware product. As a result, these high technology companies are
frequently utilizing supplemental sources of IT professionals with expertise
in current technologies.
As high technology companies continue to develop and introduce new
technologies and systems, businesses are attempting to integrate and implement
these systems into their already complex computing environments. As these
systems are being deployed on an enterprise-wide basis and on multiple
hardware and software platforms, the process of systems design and
implementation has become more complex. As a result, IS departments are faced
with a similar challenge of finding qualified IT professionals to design,
develop, deploy and maintain their systems. Frequently, however, qualified IT
professionals do not exist in-house or it may be impractical to redeploy and
retrain in-house personnel. Consequently, IS departments, like high technology
companies, are increasingly seeking to augment their staffs with IT
professionals skilled in the management and operation of such systems.
Despite increased demand for IT professionals, there continues to be a
shortage of IT professionals proficient in the most current computer languages
and applications. For example, according to the U.S. Department of Education,
the number of students graduating annually from United States universities
with bachelor degrees in computer and information sciences has decreased
approximately 43% from 42,000 in 1986 to 24,000 in 1994. Due to the high
demand for their services, many IT professionals have a variety of
opportunities in the job market. While the majority choose to pursue full-time
employment, an increasing number are attracted to the benefits of working on a
contract basis. Such benefits include more flexible work schedules,
accelerating cash compensation and the opportunity to work with emerging and
challenging technologies in a variety of industries.
To address their increasing demand for contract and permanent IT
professionals, both R&D departments of technology companies and IS departments
of large corporations are turning to IT professional services companies
24
<PAGE>
to augment their existing operations. In July 1996, Dataquest estimated that
the size of the IT professional services market in the United States in 1995
was $44.3 billion. Dataquest estimated that this market will grow at a
compound annual rate of approximately 15.0%, reaching approximately $89.2
billion by the year 2000. Technology-dependent companies are increasingly
utilizing outside consultants to: (i) meet critical product deadlines;
(ii) focus on their core businesses; (iii) access specialized technical
skills; (iv) better match staffing levels to current needs; and (v) reduce the
costs of recruiting, training and terminating employees.
BUSINESS STRATEGY
The Company's objective is to (i) provide efficient and high quality
contract and permanent IT professional services to R&D departments of high
technology clients and IS departments of corporate clients and (ii) become the
"agent of choice" for IT professionals. To achieve this objective, the Company
focuses on the following key elements of its business strategy:
. FOCUS ON TECHNOLOGY-DRIVEN CLIENTS. Historically, the Company has focused
on providing its services primarily to R&D departments of high technology
companies. As a result, the Company frequently provides services for critical
projects such as the development of next generation software and hardware
products. These projects require IT professionals with more highly specialized
skill sets than traditional supplemental IT personnel, enabling the Company to
realize higher margins for its services. In addition, because many technology
companies are concentrated in certain regional markets across the United
States, such as Silicon Valley, the Research Triangle and Austin, Texas, the
Company is able to effectively market its services nationally through a
limited network of regional markets. To complement its core R&D business, the
Company recently acquired TeamAlliance which has broadened its service
offerings to include providing IT professionals to IS departments of corporate
clients. This acquisition enables the Company both to cross-recruit IT
professionals and to facilitate the introduction of its R&D service offerings
to new regional markets.
. PROVIDE SPECIALIZED IT SERVICES THROUGH DISTINCT PRACTICE GROUPS. The core
of the Company's operating model is the "Practice Group." The Company has
organized its Contract Services Division into Practice Groups focused on
specialized technologies (such as Windows, Unix and CAD) frequently used by
its clients. To a more limited extent, the Company has begun to focus its
Permanent Placement Division and revenue generating employees within the IS
Practice Group in a similarly specialized manner. While the Company has
multiple Practice Groups in many of its regional markets, each Practice Group
operates relatively autonomously and compensates its revenue generating
employees based on the performance of the particular Practice Group. These
Practice Groups enable account managers and technical recruiting agents to
focus on and develop a better understanding of client requirements and the
different skill levels of the Company's IT professionals. This organization is
also designed to allow for quicker and more efficient placement, to require
fewer interviews of IT professionals and ultimately to result in the provision
of better qualified candidates.
. LEVERAGE PERMANENT PLACEMENT BUSINESS. While a significant percentage of
the Company's net revenues in 1996 were generated by its contract services,
permanent placements remain an important component of the Company's overall
business strategy. By offering both contract services and permanent
placements, the Company is able to provide more comprehensive personnel
services to its clients and pursue cross-selling opportunities. In 1996, the
Company provided contract services to approximately 250 of its clients for
whom it also provided permanent placements. In addition, the permanent
placement business is typically a more expedient means to achieve
profitability in the opening of new regional markets than contract services.
Of the Company's nine regional markets existing prior to the TeamAlliance
Acquisition, eight were initially developed with permanent placement services
prior to adding contract services to such regional markets.
. ATTRACT AND RETAIN QUALIFIED IT PROFESSIONALS. A key element of the
Company's success has been its ability to attract and retain qualified IT
professionals. The Company believes that it has developed a reputation among
IT professionals for efficient and high quality placements by: (i) focusing on
an IT professional's particular field of technical specialization; (ii)
identifying and delivering high quality assignments involving leading-edge
technologies; and (iii) providing access for IT professionals to cash
compensation levels
25
<PAGE>
comparable to or higher than that of similarly skilled, full-time employees.
The Company's goal is to become the "agent of choice" for IT professionals and
the Company has developed programs to increase the retention of IT
professionals, such as its Star Campaign and the granting of stock options
under the Company's IT Professional Plan.
. PROVIDE STRONG CORPORATE SUPPORT TO REGIONAL MARKETS. The Company commits
significant resources in support of its regional markets while allowing them
to operate with minimal centralized management. Practice groups in each
regional market are responsible for their own profitability and management. In
support of these Practice Groups, the Company provides centralized training,
information systems and financial and accounting services. Managers from the
corporate office regularly visit each regional market, monitor results of each
Practice Group and oversee the addition of new employees. The Company also
provides communication links through an extensive video conferencing system,
allowing its corporate office to communicate with many of its regional markets
on a frequent and more personal basis. Management and sales training is
provided throughout the year on a weekly basis at its corporate headquarters
in San Jose and at its training facility in Park City, Utah.
GROWTH STRATEGY
In late 1994, the Company implemented a growth strategy intended to create a
network of offices in regional markets, each comprised of multiple Practice
Groups. Key elements of this strategy are to:
. ADD PRACTICE GROUPS TO EXISTING REGIONAL MARKETS. The Company currently
has 11 different types of Practice Groups and only one of the Company's 14
regional markets has more than four types of Practice Groups. As a result, the
Company believes that there is a substantial opportunity to increase the
number of Practice Groups within its existing regional markets. Historically,
the Company has entered a new market with the Permanent Placement Division and
then added additional Practice Groups to leverage that office's reputation and
relationships and to take advantage of cross-selling opportunities. The
Company will continue to implement a focused expansion of its Practice Groups
in existing regional markets in order to meet the needs of new and existing
clients.
26
<PAGE>
The following table illustrates the Practice Groups currently located in
each of the Company's existing regional markets. Although the Company does not
expect to add every Practice Group to each regional market, the Company
believes that there are opportunities to add Practice Groups in each regional
market, particularly those that have been recently entered.
PRACTICE GROUPS BY REGIONAL MARKET
<TABLE>
<CAPTION>
SILICON SALT LAKE NEW YORK
VALLEY SEATTLE PORTLAND PHOENIX CITY DENVER AUSTIN HOUSTON CHICAGO TAMPA ORLANDO RALEIGH CITY LONDON
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONTRACT
SERVICES
-----------------------------------------------------------------------------------------------------------------------
HK WINDOWS . . . . . .
-----------------------------------------------------------------------------------------------------------------------
HK UNIX .
-----------------------------------------------------------------------------------------------------------------------
HK QA .
-----------------------------------------------------------------------------------------------------------------------
HK CAD . . . . .
-----------------------------------------------------------------------------------------------------------------------
HK WRITERS .
-----------------------------------------------------------------------------------------------------------------------
HK INTERNET .
-----------------------------------------------------------------------------------------------------------------------
HK TECH SUPPORT .
-----------------------------------------------------------------------------------------------------------------------
HK NET . . . . .
-----------------------------------------------------------------------------------------------------------------------
HK IS . . . . . . . .
-----------------------------------------------------------------------------------------------------------------------
PERMANENT
PLACEMENT
SERVICES
-----------------------------------------------------------------------------------------------------------------------
HK SOFTWARE . . . . . . . . . . .
-----------------------------------------------------------------------------------------------------------------------
HK HARDWARE . .
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
. HIRE ADDITIONAL REVENUE-GENERATING EMPLOYEES FOR EXISTING PRACTICE
GROUPS. The Company believes that there is potential for revenue growth from
the addition of technical recruiting agents and account managers in existing
Practice Groups. The addition of these employees represents increased
opportunities to generate revenues by servicing a greater number of current
and prospective clients and IT professionals. During 1996 and the first six
months of 1997, the Company increased the number of revenue-generating
employees from 123 to 275 employees. In large part, this internal expansion
has been implemented according to a growth model based on the Company's
experience expanding in regional markets with substantially similar
characteristics. By using its growth model, decisions to make additional
investments, such as increasing headcount, advertising expense and the number
and type of Practice Groups, are determined based on objective performance
criteria. The Company believes that its growth model provides its managers
with an effective tool for executing and monitoring an expansion strategy and
schedule.
. OPEN ADDITIONAL LOCATIONS IN NEW REGIONAL TECHNOLOGY MARKETS. A key
element of the Company's growth strategy is to continue to enter new regional
high technology markets. The Company currently has Practice Groups in 14
regional markets, including Silicon Valley, the Research Triangle and certain
other high technology markets. The Company is currently considering entering
other technology markets, such as Atlanta, Boston and Dallas, and may in the
future consider further international expansion beyond London.
. ACQUIRE COMPLEMENTARY BUSINESSES. The Company intends to explore the
potential acquisition of businesses that would provide it with: (i) new
technology practices; (ii) strategically complementary businesses; (iii) new
geographical presences; or (iv) international recruiting capabilities. For
example, as a result of the TeamAlliance Acquisition, the Company expanded its
Practice Groups to include traditional IS contract services and entered five
new regional markets.
27
<PAGE>
HALL KINION'S SERVICES
The Company provides contract and permanent placement services for the
critical needs of R&D departments of high technology companies and IS
departments of corporate clients. In 1996, on a pro forma basis for the
TeamAlliance Acquisition, approximately 87.2% and 12.8% of the Company's net
revenues were derived from its Contract Services Division and Permanent
Placement Division, respectively. In the first six months of 1997,
approximately 87.7% and 12.3% of the Company's net revenues were derived from
its Contract Services Division and Permanent Placement Division, respectively.
CONTRACT SERVICES
The Company's Contract Services Division provides supplemental IT
professionals. In a typical R&D contract, an IT professional is contracted to
a high technology client, usually in connection with a specific application or
project. In a typical IS contract, an IT professional is contracted to an IS
department for the implementation and maintenance of corporate computer
systems. The Company's IT professionals usually work on assignments with a
maturity of approximately three to nine months, with all work billed on an
hourly basis and performed at the direction of the client.
The Company has organized its Contract Services Division into seven types of
Practice Groups focused on those technologies widely used by its high
technology clients in the development of their products (HK Windows, HK QA, HK
CAD, HK Unix, HK NET, HK Writers and HK Internet). In addition, through its HK
Technology Support Practice Group, the Company offers its high technology
clients access to IT professionals providing administrative support, data
entry, help desk and customer support. The Company expects this Practice Group
to represent a declining percentage of the Company's net revenues as the
Company focuses on more specialized, higher margin Practice Groups. In
conjunction with its TeamAlliance Acquisition in December 1996, the Company
has also added an HK IS Practice Group, which provides IT professionals,
programmers and analysts to corporate clients' IS departments.
28
<PAGE>
Set forth below is a table which describes the typical technology skill sets
provided by the Company's IT professionals, as well as an example of a
representative client assignment completed by such IT professionals.
PRACTICE GROUP TYPES OF IT PROFESSIONAL REPRESENTATIVE HALL KINION
CLIENT ASSIGNMENT
- --------------------------------------------------------------------------------
HK Windows Developers of Microsoft IT professional developed a
Windows 3.1, Windows NT, portion of a GUI for database
Windows 95 and Macintosh software using Windows NT,
providing services related C++, OLE, DLL and DDE
to: GUI, applications, device
drivers, BIOS, RDBMS/CS, test
development and diagnostics
- --------------------------------------------------------------------------------
HK Unix Developers and engineers for
the many types of Unix IT professional participated
providing services related in the development of a
to: GUI, application, device system verification program
driver, kernal, RDBMS/CS, utilizing C, C++, Perl,
test development, diagnostics diagnostics and device driver
and Realtime experience
- --------------------------------------------------------------------------------
HK QA Software testers and test
engineers for quality IT professional was assigned
assurance, including as a software test engineer
application testers, leading the project to
compatibility testers, black develop QA scripts for fault
and white box testers, tolerance data transaction
network testers, test system using C and C++ in a
automation, test developers Windows environment
and web application testers
- --------------------------------------------------------------------------------
IT professional with
HK CAD All levels of design and mechanical engineering
support for computer-aided background helped design a
design systems, including handheld medical device using
engineers, designers, the 3D solid modeling tool
drafters, engineering Pro-E
technicians, digital/analog
hardware designers and ASIC
designers
- --------------------------------------------------------------------------------
HK Writers Technical writers of IT professional documented
software, computer and online software installation
networking systems and user manuals for new
documentation product release using
RoboHelp, FrameViewer,
Hyperhelp and Framemaker
documentation tools
- --------------------------------------------------------------------------------
HK Net IT professional serviced a
Engineers providing services client's software/hardware
with respect to network migration from a Windows 95
design, engineering, support to a Windows NT environment
and administration, such as utilizing Windows 95
Unix system administrators, troubleshooting and
PC support engineers, PC configuration skills to
system administrators, NT configure workstations and
system administrators, provide connectivity
Macintosh system
administrators, LAN/WAN
analysts, CNE/CAN and DBA
analysts
- --------------------------------------------------------------------------------
HK Tech Support Windows and Macintosh IT professional provided
administrative support, data Macintosh support to a
entry, help desk, customer client's engineering
service, graphic designers, department and developed
desktop publishers, multimedia presentations for
illustrators, technicians and software developer relations
multimedia experts using PowerPoint, MS Word and
Excel
- --------------------------------------------------------------------------------
HK IS Consultants, programmers and IT professional with
analysts for the MIS extensive relational database
environment, including system skills delivered a mission-
analysts, legacy systems, critical project for systems
mainframe applications, integrity
Oracle services, relational
databases, Powerbuilder
programmers, database
administrators and client
server analysts
- --------------------------------------------------------------------------------
HK Internet Engineers providing services A team of IT professionals
with respect to Java, CGI constructed a web site,
(Common Gateway Interface), facilitating delivery of
HTML, Netscape server, information to the general
Microsoft server, Oracle public
server, Sybase server, Unix-
based server software,
Shockwave, VRML and ActiveX
29
<PAGE>
PERMANENT PLACEMENT SERVICES
The Company provides IT professionals for permanent placement with its
corporate clients. The Company currently delivers such services in 11 of the
Company's 14 regional markets. The Company recognizes revenue when the IT
professional commences employment. The Company typically guarantees this
placement for a period of 90 days. This placement fee is usually structured as
a percentage of the IT professional's first-year annual compensation. While
the Permanent Placement Division has historically offered its services to R&D
departments of high technology firms, the Company has begun to leverage the
client relationships from TeamAlliance to offer permanent placement services
to IS departments. The Permanent Placement Division currently markets its
services to the same client base as the Contract Services Division. The
Company plans to develop distinct hardware and software Practice Groups within
its Permanent Placement Division in certain regional markets.
HALL KINION'S OPERATING AND SALES APPROACH
CONTRACT SERVICES DIVISION
Within the Contract Services Division, Technical Recruiting Agents ("TRAs")
and Account Managers are typically organized and work in teams of four or more
individuals within a Practice Group. This specialization enables TRAs and
Account Managers to focus on and develop a better understanding of client
requirements and the different skill levels of the Company's IT professionals.
Each team is managed by one of its members who reports to the director of the
Practice Group to which the team belongs. At each of the Company's offices,
sales teams work together in an open environment. In general, TRAs and Account
Managers are compensated through a combination of base salary and bonus
incentives based on overall Practice Group performance and gross profit. The
Company's team approach is designed to develop a culture that encourages
teamwork and cross-selling among Practice Groups.
Technical Recruiting Agents
TRAs are responsible for recruiting and assessing the Company's IT
professionals, understanding their preferences and capabilities and monitoring
their availability, progress and job satisfaction. The Company's goal is for
its TRAs to build long-term relationship with IT Professionals in their
particular fields of specialization. Each experienced TRA is responsible for
up to approximately 20 IT professionals under contract at any time and
monitors the job status and availability of approximately 40 additional IT
professionals. TRAs operate only within a particular division or Practice
Group and are required to attend Company training programs to keep current on
the latest technologies within their particular specialization. As of June 30,
1997, the Company employed 81 TRAs located throughout its regional markets.
Account Managers
Account Managers are responsible for relationships with the Company's
clients. The Company's Account Managers do not form exclusive relationships
with the Company's clients, but rather operate within a particular technical
specialization. If an Account Manager learns of an opportunity at one of the
Company's clients in a specialization outside his or her own, the Account
Manager refers the lead to an Account Manager in the appropriate technological
specialization. The Company believes that its organization based on
specialization rather than client accounts enables Account Managers to develop
relationships in different departments of clients and at different levels and
to the transfer job requisitions to Account Managers familiar with the
appropriate specialization, leading to quicker, more accurate placements. As
of June 30, 1997, the Company employed approximately 78 Account Managers
throughout its regional markets.
IT Professionals
A major challenge facing IT services companies is the identification and
retention of highly qualified software engineers, computer programmers,
technical writers and designers. The Company believes that it has
30
<PAGE>
developed a reputation among IT professionals for efficient and high quality
placements by: (i) focusing on an IT professional's particular field of
technical specialization; (ii) identifying and delivering high quality
assignments involving leading-edge technologies and (iii) providing access for
IT professionals to cash compensation levels comparable to or higher than that
of similarly skilled, full-time employees. The Company's goal is to become the
"agent of choice" for IT professionals and is developing programs to increase
the retention of IT professionals such as the Star Campaign and the granting
of stock options. The Star Campaign is designed to enable the Company to
attract and retain the highest quality IT professionals available by providing
these selected professionals with, among other things, advance notice of
state-of-the-art assignments and perquisites, including participation in the
Company's 401(k) plan, access to medical and dental benefits and Company stock
options under the IT Professional Plan. See "--Business Strategy," "--
Competition" and "Management--IT Professional Plan."
PERMANENT PLACEMENT DIVISION
Recruiters
Recruiters are primarily responsible for establishing relationships with
clients needing permanent IT professional services and matching the needs of
the Company's clients with the preferences and skills of the Company's
permanent placement job candidates. Recruiters frequently engage in other
activities to enhance their knowledge of the IT industry and issues that are
relevant to clients. Many Recruiters are members of industry trade
organizations and participate with clients in Company-sponsored seminars. In
addition, from time to time Recruiters will bring clients together to discuss
mutual technical issues or challenges. The Company believes these types of
activities strengthen client relationships and help to build alliances or
partnerships. The Company employed a total of approximately 116 Recruiters as
of June 30, 1997.
Recruiters are paid primarily on a commission basis. The Company's
compensation for Recruiters encourages communication and cooperation among
Recruiters by sharing compensation among Recruiters involved in an individual
placement. The Company establishes performance standards based on revenue
generation and other factors, such as the number of sales calls completed by
Recruiters.
CORPORATE SUPPORT SERVICES
In support of its Practice Groups, the Company provides centralized
training, information systems and financial and accounting services. Managers
from the corporate office regularly visit each regional market, monitor
results of each Practice Group and oversee the addition of new employees.
Performance is measured at the division and Practice Group level and not at
the office or regional market level. The Company believes that this management
structure fosters synergy among divisions and Practice Groups, as well as
cooperation and cross-referrals from regional market to regional market.
In addition to administrative support functions, the Company makes
substantial annual investments in training for its Vice Presidents, Directors,
TRAs, Account Managers and Recruiters. The Company provides management and
sales training throughout the year at its corporate headquarters in San Jose,
California and at its training facility in Park City, Utah.
The Company has developed a business growth model and related best practices
training program. Developed from in-house historical data, the model consists
of a set of detailed guidelines for use by the Company's divisions and
Practice Groups to expand within the Company's regional markets. By using the
growth model, decisions to make additional investments, such as increasing
headcount, advertising expense and the number and type of Practice Groups, are
determined based on objective performance criteria. The Company believes that
the growth model provides its managers with an effective tool for executing
and monitoring an expansion strategy and schedule. The Company applied the
growth model to its entrance into the Austin, Denver and Phoenix regional
markets during 1996.
31
<PAGE>
CLIENTS
The Company's R&D Contract Services and Permanent Placement clients are
predominantly high technology companies and include software developers,
computer systems manufacturers and telecommunications suppliers. In addition to
technology companies, the Company's IS Practice Group provides services to
financial services, pharmaceutical and industrial companies. In the last 12
months, the Company has provided services to approximately 1,600 clients in a
variety of industries, including those listed below. The Company's largest
client represented no more than 5.0% of the Company's net revenues in 1996. See
"Risk Factors--Industry and Geographic Concentration."
SOFTWARE COMPUTER SYSTEMS
Adobe Systems, Inc. 3Com Corporation
Borland International, Inc. Apple Computer, Inc.
Cable-Sat Systems, Inc. Creative Labs, Inc.
cc:Mail Credence Systems Corporation
Claris Corporation Diba, Inc.
ENlighten Software Solutions, Inc. Evans & Sutherland Computer
Filoli Information Systems Corporation
GT Interactive Software Corporation HAL Computer Systems, Inc.
Informix Corporation Net Frame Systems, Inc.
IPC Software Oliver Design, Inc.
Lotus Development Corp. Silicon Graphics, Inc.
McAfee Associates, Inc. Sun Microsystems, Inc.
Microsoft Corp. Tandem(R) Computers Incorporated
Network Computing Devices, Inc. Unisys Corporation
Oracle Corporation Wyse Technology, Inc.
The Perkin-Elmer Corporation
Presidio
Remedy Corporation TELECOMMUNICATIONS
Resumix, Inc.
Sybase, Inc. Aspect Telecommunications Corporation
Wall Data Incorporated AT&T Wireless Services
Cisco Systems, Inc.
GTE Wireless Data Services; GTE
Mobilnet
SOFTWARE INTERNET International Tapetronics Corporation
Jones Cyber Solutions, Ltd.
Enterprise Integration Technologies Magellan Communications, Inc.
Exodus Communication, Inc. NEC America, Inc.
ITOCHU Corporation Nextel Communications, Inc.
Knight Ridder, Inc. On Command Video
ON Technology Corporation P-Com, Inc.
Web TV Network TCI
Worlds Inc. Verifone, Inc.
SEMICONDUCTOR MEDICAL TECHNOLOGIES
Hitachi America, Ltd. Abbott Diagnostics Division, Abbott
Hitachi Computer Products Laboratories
Kevex X-Ray Division of Kevex
Instruments, Inc. Abbott Laboratories
KLA Instruments Corporation ADAC Laboratories
Motorola, Inc. Cemax-Icon, Inc.
OZ Technologies, Inc. Genentech, Inc.
Pioneer Technical Horizon Systems, Inc.
Silicon Systems, Inc. Immunex Corporation
Pfizer, Inc.
MISCELLANEOUS
Comerica, Inc.
Hughes Aerospace & Electronics Company
Minolta Co, Ltd.
Raytek Corporation
Trimble Navigation Ltd.
32
<PAGE>
COMPETITION
The IT staffing industry is highly competitive and fragmented and has low
barriers to entry. The Company competes for potential clients with providers
of outsourcing services, systems integrators, computer systems consultants,
other providers of IT staffing services and temporary personnel agencies. Many
of the Company's current and potential competitors have longer operating
histories, significantly greater financial and marketing resources, greater
name recognition and a larger installed base of IT professionals and clients
than the Company. In addition, many of these competitors, including numerous
smaller privately held companies, may be able to respond more quickly to
customer requirements and to devote greater resources to the marketing of
services than the Company. Because there are relatively low barriers to entry,
the Company expects that competition will increase in the future. Increased
competition could result in price reductions, reduced margins or loss of
market share, any of which could materially and adversely affect the Company's
business, operating results and financial condition. Further, there can be no
assurance that the Company will be able to compete successfully against
current and future competitors or that competitive pressures faced by the
Company will not have a material adverse effect on its business, operating
results and financial condition. The Company believes that the principal
factors relevant to competition in the IT staffing services industry are the
recruitment and retention of highly qualified IT professionals, rapid and
accurate response to client requirements and, to a lesser extent, price. The
Company believes that it competes favorably with respect to these factors. See
"Risk Factors--Highly Competitive Market."
EMPLOYEES
As of June 30, 1997, approximately 1,100 IT professionals placed by the
Company were providing contract services to the Company's clients. The
Company's corporate staff at June 30, 1997 consisted of 348 full-time
employees, of whom 81 are TRAs, 78 are Account Managers, 116 are Recruiters
and 73 serve in various administrative and accounting capabilities. The
Company is not a party to any collective bargaining agreements covering any of
its employees, has never experienced any material labor disruption and is
unaware of any current efforts or plans to organize its employees. The Company
considers its relationships with its employees to be good. See "Risk Factors--
Ability to Attract and Retain Qualified IT Professionals."
PROPERTIES
The Company's principal executive offices are currently located in
Cupertino, California and occupy an aggregate of approximately 16,375 square
feet of office space pursuant to a sublease that expires in August 2000. The
Company also leases or subleases offices for its operations in Austin, Texas;
Chicago, Illinois; Denver, Colorado; Houston, Texas; London, England; New
York, New York; Orlando, Florida; Phoenix, Arizona; Portland, Oregon; Raleigh,
North Carolina; Sandy, Utah; Seattle, Washington; and Tampa, Florida. In
addition, the Company owns a training facility located in Park City, Utah.
33
<PAGE>
The table below indicates as of June 30, 1997, the location of the Company's
offices and the month and years in which they were opened by the Company or
TeamAlliance:
<TABLE>
<CAPTION>
OFFICES OPENED
----------------------------------------------------------- --------------
<S> <C>
Cupertino (San Jose), California........................... July 1987
Capitola................................................. January 1993
Fremont.................................................. January 1994
Mountain View............................................ August 1996
Foster City.............................................. January 1997
Salt Lake City, Utah....................................... August 1993
Seattle, Washington........................................ November 1994
Chicago, Illinois.......................................... January 1995
Tampa, Florida............................................. March 1995
Portland, Oregon........................................... July 1995
Orlando, Florida........................................... August 1995
Denver, Colorado........................................... November 1995
New York, New York......................................... February 1996
Austin, Texas.............................................. April 1996
Phoenix, Arizona........................................... July 1996
Raleigh, North Carolina.................................... September 1996
London, England............................................ November 1996
Houston, Texas............................................. December 1996
</TABLE>
LEGAL PROCEEDINGS
The Company is from time to time engaged in or threatened with litigation in
the ordinary course of its business. The Company is not currently a party to
any material litigation.
34
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company as of the date of this Prospectus:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------ --- -----------------------------------------------------
<S> <C> <C>
Brenda C. Hall.......... 44 Chief Executive Officer and Director
Paul H. Bartlett........ 36 President and Director
Martin A. Kropelnicki... 31 Vice President, Chief Financial Officer and Secretary
Rita S. Hazell.......... 31 Vice President, R&D Contract Services
Craig J. Silverman...... 36 Vice President, Permanent Placement
Mordecai Levine......... 38 Vice President, IS Contract Services
Todd J. Kinion (2)...... 35 Director
Kathleen D. LaPorte (1). 35 Director
Jon H. Rowberry (1)(2).. 50 Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
BRENDA C. HALL co-founded the Company and has been a director since the
Company's incorporation in 1991. From December 1992 to the present, Ms. Hall
has served as Chief Executive Officer of the Company. Ms. Hall served as
President and Assistant Secretary of the Company from December 1991 to October
1996 and from December 1991 to September 1996, respectively. From August 1981
to June 1987, Ms. Hall was general manager of a Snelling & Snelling franchise,
a personnel services company.
PAUL H. BARTLETT joined the Company in October 1996 as President. Mr.
Bartlett has served as a director of the Company since January 1996. Prior to
joining the Company, Mr. Bartlett was affiliated with the Sprout Group, a
venture capital firm, from February 1991 until October 1996, having served as
a general partner before joining the Company. Mr. Bartlett received an A.B.
degree in economics from Princeton University and an M.B.A degree from the
Stanford Graduate School of Business.
MARTIN A. KROPELNICKI joined the Company in February 1997 as Vice President,
Chief Financial Officer and Secretary. Prior to joining the Company, Mr.
Kropelnicki was a Director at Deloitte & Touche Consulting Group-ICS, a
consulting firm, from February 1996 to February 1997. From June 1989 to
February 1996, Mr. Kropelnicki held various positions, most recently as a
Director in the financial organization at Pacific Gas & Electric Company, a
natural gas and electric utility. Mr. Kropelnicki holds a B.A. degree and an
M.A. degree in business economics from San Jose State University.
RITA S. HAZELL has served as Vice President, R&D Contract Services since
April 1996. Prior to assuming her current position, Ms. Hazell served in a
variety of positions, including Director, R&D Contract Services and Manager,
R&D Contract Services, since joining the Company in September 1993. From
November 1987 to September 1993, Ms. Hazell served as a manager for Oxford &
Associates, Inc., a technical contract services firm.
CRAIG J. SILVERMAN joined the Company in April 1996 as Vice President,
Permanent Placement. Prior to joining the Company, Mr. Silverman served as
Vice President, Sales at Strategic Mapping, Inc., a software development
company, from September 1989 to February 1996.
MORDECAI LEVINE joined the Company in December 1996 as Vice President, IS
Contract Services. Since March 1994, Mr. Levine has served as Chief Operating
Officer of TeamAlliance. From January 1991 to February 1994, Mr. Levine served
as President of Berkeley Software, Inc., a software development company. Mr.
Levine received a B.A. degree in economics from Brandeis University and an
M.B.A. degree from the University of Chicago Graduate School of Business.
35
<PAGE>
TODD J. KINION co-founded the Company and has served as a director of the
Company since the Company's incorporation in 1991. Since August 1996, Mr.
Kinion has been a private investor. Mr. Kinion served as Vice President,
Recruitment Services of the Company from December 1995 to August 1996. Prior
to that time, Mr. Kinion served as Chief Financial Officer and Treasurer of
the Company from December 1991 to December 1995. Mr. Kinion also served as
Secretary from December 1991 to February 1997. Mr. Kinion holds a B.A. degree
in political science from the University of California at Santa Barbara.
KATHLEEN D. LAPORTE has served as a director of the Company since November
1996. From January 1993 to the present, Ms. LaPorte has been affiliated with
the Sprout Group, a venture capital firm, and has served as a general partner
since December 1993. From September 1987 to December 1992, Ms. LaPorte was a
principal of Asset Management Company, a venture capital firm. Ms. LaPorte
currently serves on the Board of Directors of Onyx Pharmaceuticals, Inc.,
FemRx, Inc., Lynx Therapeutics, Inc. and a number of privately held companies.
Ms. LaPorte holds a B.S. degree in biology from Yale University and an M.B.A.
degree from the Stanford Graduate School of Business.
JON H. ROWBERRY has served as a director of the Company since August 1996.
Mr. Rowberry currently serves as President and Chief Operating Officer of the
Franklin Covey ("Franklin"), a provider of time management products and
training. Prior to assuming his current positions, Mr. Rowberry was Chief
Financial Officer of Franklin from August 1995 to August 1996. From 1985 to
1995, Mr. Rowberry was employed in several executive positions with Adia S.A.
and Adia Services, Inc., providers of personnel services. Mr. Rowberry
currently serves on the Board of Directors of Franklin. Mr. Rowberry holds a
B.S. degree in accounting from Brigham Young University.
The Company's Board of Directors will be divided into three classes upon the
closing of this Offering. The initial term of the Class I directors expires at
the Company's annual meeting of stockholders in 1998; the initial term of the
Class II directors expires at the Company's annual meeting of stockholders in
1999; and the initial term of the Class III directors expires at the Company's
annual meeting of stockholders in 2000. Thereafter, the term of each class of
directors shall be three years. All directors hold office until the annual
meeting of stockholders at which their respective class is subject to
reelection and until their successors are duly elected and qualified, or until
their earlier resignation or removal. Except for grants of stock options,
directors of the Company generally do not receive any compensation for their
services as directors. See "--1997 Stock Option Plan."
Under the employment agreement between the Company and Paul H. Bartlett, the
Company will nominate Mr. Bartlett for election as a member of its Board of
Directors as long as he remains employed, and Brenda C. Hall has agreed to
cause her shares of the Company's stock to be voted in favor of Mr. Bartlett's
election. See "--Employment Agreements; Termination of Employment and Change
in Control Arrangements."
Officers serve at the discretion of the Board and are elected annually.
There are no family relationships among the directors or officers of the
Company.
COMMITTEES OF THE BOARD OF DIRECTORS
On May 23, 1997, the Board of Directors established a Compensation Committee
and an Audit Committee. The Compensation Committee makes recommendations
concerning the salaries and incentive compensation of employees of, and IT
professionals to, the Company and will administer the IT Professional Stock
Option Plan, and the 1997 Stock Option Plan. See "--IT Professional Plan" and
"--1997 Stock Option Plan." The Audit Committee is responsible for reviewing
the results and scope of audits and other services provided by the Company's
independent auditors.
36
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth in summary form information concerning the
compensation awarded to, earned by, or paid for services rendered to the
Company in all capacities during 1996 by: (i) the Company's Chief Executive
Officer; (ii) the Company's next two most highly compensated executive
officers whose salary and bonus for such year exceeded $100,000 and who served
as executive officers of the Company at December 31, 1996; and (iii) two
additional individuals for whom disclosure would have been provided pursuant
to (ii) above but for the fact that such individuals were not serving as
executive officers of the Company on December 31, 1996 (collectively, the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION (2) AWARDS
------------------------- ---------------------
NAME AND SECURITIES UNDERLYING ALL OTHER
PRINCIPAL POSITION SALARY (3) BONUS OPTIONS (#) COMPENSATION
(1) ------------------------- --------------------- ------------
<S>-----------------<C>- <C> <C> <C>
Brenda C. Hall.... $ 313,231 $ 60,000 0 0
Chief Executive
Officer
Keith Corbin (4).. 163,077 106,000 0 0
Former Chief
Financial Officer
and Assistant
Secretary
Todd J. Kinion
(5).............. 108,820 7,989 0 36,132 (6)
Former Vice
President and
Secretary
Rita S. Hazell
(7).............. 85,500 109,229 0 0
Vice President,
R&D Contract
Services
Craig J. Silverman
(8).............. 63,750 71,412 50,000 0
Vice President,
Permanent
Placement
</TABLE>
- --------
(1) Paul H. Bartlett joined the Company as President in October 1996. His
annual base salary is currently set at $240,000.
Mordecai Levine joined the Company as Vice President, IS Contract Services
in December 1996 and his annual base salary is currently set at $125,000.
Martin A. Kropelnicki joined the Company as Vice President, Chief Financial
Officer and Secretary in February 1997 and his annual base salary is
currently set at $150,000.
(2) The aggregate amount of all other compensation in the form of perquisites
and other personal benefits does not exceed the lesser of either $50,000
or 10% of the total annual salary and bonus for each officer.
(3) Salary includes amounts deferred under the Company's 401(k) Plan.
(4) Mr. Corbin was Chief Financial Officer and Assistant Secretary of the
Company through December 1996 and currently provides consulting services
to the Company.
(5) Mr. Kinion was Vice President and Secretary of the Company until August
1996 and February 1997, respectively.
(6) Represents monthly payments of $9,033 paid to Mr. Kinion commencing
September 1996 pursuant to the terms and conditions of a settlement
agreement between Mr. Kinion and the Company. See "Certain Transactions."
(7) Ms. Hazell joined the Company in September 1993 and has served as Vice
President, R&D Contract Services since April 1996. Her annual base salary
is currently set at $125,000.
(8) Mr. Silverman joined the Company as Vice President, Permanent Placement in
April 1996. His annual base salary is currently set at $100,000.
37
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made during 1996
to each of the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (3)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ----------------
NAME (1) GRANTED FISCAL YEAR SHARE (2) DATE 5% 10%
- ---------------- ---------- ------------- --------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Brenda C. Hall.. 0 -- -- -- -- --
Keith Corbin.... 0 -- -- -- -- --
Todd J. Kinion.. 0 -- -- -- -- --
Rita S. Hazell.. 0 -- -- -- -- --
Craig J.
Silverman (4).. 50,000 2.7% $1.50 05/02/06 $47,167 $119,531
</TABLE>
- --------
(1) Except for Mr. Silverman, no other Named Executive Officer received an
option grant in 1996. In October 1996, the Company granted an option to
Paul H. Bartlett to purchase 974,000 shares of Common Stock at $4.00 per
share. Mr. Bartlett is 50% vested in such shares and will vest in the
balance of the shares in a series of 24 monthly installments commencing on
January 1, 1998. In December 1996, the Company granted options to Mordecai
Levine to purchase 92,000 shares of Common Stock at $5.10 per share.
Mr. Levine is vested in 52,000 shares, vests in 8,000 shares upon the
completion of one year of service from the date of grant and vests in the
balance of the shares in equal monthly installments over the 48 months of
service beginning December 2, 1997. In February 1997, the Company granted
an option to Martin A. Kropelnicki to purchase 175,000 shares at $10.00
per share. Mr. Kropelnicki's option vests with respect to 20% of the
shares upon the completion of one year of service from the grant date and
vests with respect to the balance of the shares in a series of 48 monthly
installments thereafter. See "--Employment Agreements; Termination of
Employment and Change in Control Arrangements."
(2) The option was granted at an exercise price equal to the fair market value
of the Company's Common Stock, as determined by the Board of Directors on
the date of grant. The exercise price may be paid in cash, in shares of
the Company's Common Stock valued at fair market value on the exercise
date or through a cashless exercise procedure involving a same-day sale of
the purchased shares. The Company may also finance the option exercise by
loaning the optionee sufficient funds to pay the exercise price for the
purchased shares, together with any federal and state income tax liability
incurred by the optionee in connection with such exercise.
(3) The 5% and 10% assumed rates of appreciation are mandated by rules of the
Securities and Exchange Commission. The potential realizable value is
calculated based on the term of the option at its time of grant (10 years)
and is calculated by assuming that the stock price on the date of grant as
determined by the Board of Directors appreciates at the indicated annual
rate compounded annually for the entire term of the option and that the
option is sold on the last day of its term for the appreciated price.
There can be no assurance provided to any Named Executive Officer or any
other holder of the Company's securities that the actual stock price
appreciation over the 10-year term will be at the assumed 5% and 10%
levels or at any other defined level.
(4) Mr. Silverman's option was granted on May 2, 1996 and is immediately
exercisable. The shares purchasable thereunder are subject to repurchase
by the Company at the original exercise price paid per share upon the
optionee's cessation of service prior to vesting in such shares. The
repurchase right lapses and the optionee vests as to 25% of the option
shares upon completion of one year of service from the date of grant and
the balance in a series of equal monthly installments over the next 36
months of service thereafter. The option shares will vest upon an
acquisition of the Company by merger or asset sale, unless the Company's
repurchase right with respect to the unvested option shares is transferred
to the acquiring entity. The option has a maximum term of 10 years,
subject to earlier termination in the event of the optionee's cessation of
employment or service with the Company.
38
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information with respect to the value of
stock options held as of December 31, 1996 by each of the Named Executive
Officers. There were no stock option exercises by such individuals during
1996.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END (1)
--------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Brenda C. Hall............ 0 0 0 0
Keith Corbin.............. 46,048 92,096 $221,030 $442,061
Todd J. Kinion............ 0 0 0 0
Rita S. Hazell............ 24,000 36,000 115,200 172,800
Craig J. Silverman........ 50,000 (2) 0 180,000 0
</TABLE>
- --------
(1) Based on the estimated fair market value of the Company's Common Stock as
of December 31, 1996 of $5.10 per share, less the exercise price payable
upon exercise of such options.
(2) The option is immediately exercisable. The shares purchasable thereunder
are subject to repurchase by the Company at the original exercise price
paid per share upon the optionee's cessation of service prior to vesting
in such shares. The repurchase right lapses and the optionee vests as to
25% of the option shares upon completion of one year of service from the
date of grant and the balance in a series of equal monthly installments
over the next 36 months of service thereafter. None of the shares issuable
upon exercise of such option were vested as of December 31, 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the formation of the Compensation Committee in January 1997, the
Company's Board of Directors ("Board") established levels of compensation for
the Company's executive officers. Brenda C. Hall, Paul H. Bartlett and Keith
Corbin participated in deliberations of the Board regarding executive
compensation during 1996. The Company's Compensation Committee currently
consists of Todd J. Kinion and Jon H. Rowberry. Mr. Rowberry was not at any
time during 1996 or at any other time an officer or employee of the Company.
Mr. Kinion served as Vice President and Secretary of the Company until August
1996 and February 1997, respectively. See "Management--Executive Officers and
Directors."
1997 STOCK OPTION PLAN
The Company's 1997 Stock Option Plan (the "1997 Plan") was adopted by the
Board of Directors on May 23, 1997, subject to stockholder approval, as the
successor to the Company's 1996 Stock Option Plan (the "1996 Plan"). The total
number of shares of Common Stock authorized for issuance under the 1997 Plan
consists of (i) the 1,464,186 shares subject to outstanding options under the
1996 Plan as of June 30, 1997, (ii) an additional 300,000 shares of Common
Stock and (iii) an additional number of shares of Common Stock equal to 3% of
the number of shares of Common Stock outstanding on the first day of 1998,
1999 and 2000. As of June 30, 1997, no shares had been issued under the 1997
Plan. Shares of Common Stock subject to outstanding options, including options
granted under the 1996 Plan, which expire or terminate prior to exercise will
be available for future issuance under the 1997 Plan.
Under the 1997 Plan, employees, officers, directors and independent
consultants may, at the discretion of the plan administrator, be granted
options to purchase shares of Common Stock at an exercise price not less than
85% of the fair market value of such shares on the grant date. Non-employee
members of the Board will also be eligible for automatic option grants under
the 1997 Plan.
39
<PAGE>
The 1997 Plan will be administered by the Board or the Compensation
Committee of the Board after this Offering. The plan administrator has
complete discretion to determine which eligible individuals are to receive
option grants, the number of shares subject to each such grant, the status of
any granted option as either an incentive option or a non-statutory option
under the federal tax laws, the vesting schedule to be in effect for each
option grant and the maximum term for which each granted option is to remain
outstanding. In no event, however, may any one participant in the 1997 Plan
acquire shares of Common Stock under the 1997 Plan in excess of 500,000 shares
each calendar year over the term of the Plan.
The exercise price for options granted under the 1997 Plan may be paid in
cash or in outstanding shares of Common Stock. Options may also be exercised
on a cashless basis through the same-day sale of the purchased shares. The
plan administrator may also permit the optionee to pay the exercise price
through a promissory note payable in installments over a period of years. The
amount financed may include any federal or state income and employment taxes
incurred by reason of the option exercise.
The plan administrator has the authority to effect, from time to time, the
cancellation of outstanding options under the 1997 Plan in return for the
grant of new options for the same or different number of option shares with an
exercise price per share based upon the fair market value of the Common Stock
on the new grant date.
In the event the Company is acquired by merger, consolidation or asset sale,
each option outstanding at the time under the 1997 Plan will terminate to the
extent not assumed by the acquiring entity. In addition, the plan
administrator generally has the discretion to accelerate the vesting of
options.
Under the automatic grant program, each individual who first joins the Board
as a non-employee director after the date of this Offering will receive at
that time, an automatic option grant for 20,000 shares of Common Stock. The
optionee will vest in the automatic option grant in a series of four annual
installments over the optionee's period of Board service, beginning one year
from the grant date. Each option will have an exercise price equal to the fair
market value of the Common Stock on the automatic grant date and a maximum
term of ten years, subject to earlier termination following the optionee's
cessation of Board service.
The Board may amend or modify the 1997 Plan at any time. The 1997 Plan will
terminate on May 22, 2007, unless sooner terminated by the Board.
IT PROFESSIONAL PLAN
The Company's IT Professional Stock Option Plan (the "IT Professional Plan")
was adopted by the Board of Directors on May 23, 1997. The Company has
reserved 350,000 shares of Common Stock for issuance under the IT Professional
Plan, plus an additional number of shares equal to 1.5% of the number of
shares of Common Stock outstanding on the first day of each calendar year
beginning January 1, 1998. As of the date of this Prospectus, no shares had
been issued under the IT Professional Plan and no options were outstanding.
Shares of Common Stock subject to outstanding options which expire or
terminate prior to exercise will be available for future issuance under the IT
Professional Plan.
Under the IT Professional Plan, independent consultants may, at the
discretion of the plan administrator, be granted options to purchase shares of
Common Stock at an exercise price not less than 85% of the fair market value
of such shares on the grant date.
The IT Professional Plan will be administered by the Board or the
Compensation Committee of the Board after this Offering. The plan
administrator has complete discretion to determine which eligible individuals
are to receive option grants, the number of shares subject to each such grant,
the vesting schedule to be in effect for each option grant and the maximum
term for which each granted option is to remain outstanding. The plan
administrator has the authority to effect, from time to time, the cancellation
of outstanding options under the IT Professional Plan in return for the grant
of new options for the same or different number of option shares with an
exercise price per share based upon the fair market value of the Common Stock
on the new grant date.
40
<PAGE>
The exercise price for options granted under the IT Professional Plan may be
paid in cash or in outstanding shares of Common Stock. Options may also be
exercised on a cashless basis through the same-day sale of the purchased
shares.
In the event the Company is acquired by merger, consolidation or asset sale,
each option outstanding at the time under the IT Professional Plan will
terminate to the extent not assumed by the acquiring entity. In addition, the
plan administrator generally has the discretion to accelerate the vesting of
options.
The Board may amend or modify the IT Professional Plan at any time. The IT
Professional Plan will terminate on May 22, 2007, unless sooner terminated by
the Board.
EMPLOYEE STOCK PURCHASE PLAN
The Company expects to adopt before this Offering an Employee Stock Purchase
Plan (the "Purchase Plan"), subject to approval by the stockholders. A total
of 150,000 shares of Common Stock will be reserved for issuance under the
Purchase Plan. The Purchase Plan, which is intended to qualify under Section
423 of the Internal Revenue Code, will be implemented by six-month offerings
commencing after the closing of this Offering. The Purchase Plan will be
administered by the Compensation Committee of the Board. Employees will be
eligible to participate if they are employed by the Company for more than 20
hours per week and have been employed by the Company for at least ninety days.
The Purchase Plan permits eligible employees to purchase Common Stock through
payroll deductions, which may not exceed 10% of an employee's cash
compensation, nor more than 1,000 shares per participant on any purchase date.
The price of stock purchased under the Purchase Plan will be 85% of the lower
of the fair market value of the Common Stock at the beginning of the six-month
offering period or on the purchase date. Employees may end their participation
in the offering at any time during the offering period, and participation ends
automatically on termination of employment with the Company. Each outstanding
purchase right will be exercised immediately prior to a merger or
consolidation. The Board may amend or terminate the Purchase Plan immediately
after the close of any purchase date. However, the Board may not, without
stockholder approval, materially increase the number of shares of Common Stock
available for issuance. The Purchase Plan will in all events terminate in May
2007.
EMPLOYMENT AGREEMENTS; TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
In October 1996, the Company entered into an employment agreement with Paul
H. Bartlett. Under the agreement, Mr. Bartlett will be employed as the
Company's President, reporting to its Chief Executive Officer. The agreement
provides for an annual base salary of $240,000. Mr. Bartlett is also eligible
for an annual bonus, subject to a maximum limitation of 25% of his annual base
salary. In addition, the Company granted to Mr. Bartlett an immediately
exercisable stock option to purchase 974,000 shares of Common Stock at an
exercise price of $4.00 per share, subject to certain repurchase rights of the
Company. Mr. Bartlett is 50% vested in such shares and will vest in the
balance of the shares in a series of 24 monthly installments commencing
January 1, 1998. In addition, all unvested option shares automatically vest
upon the occurrence of certain events, including a merger of the Company after
which 50% or less of the surviving corporation's voting securities are owned
by the Company's stockholders, a sale by the Company of all or substantially
all of its assets, or a constructive discharge of Mr. Bartlett. Either the
Company or Mr. Bartlett may terminate Mr. Bartlett's employment with the
Company at any time by giving the other party 30 days prior written notice. If
Mr. Bartlett is terminated other than for cause or disability, or if Mr.
Bartlett is constructively discharged, Mr. Bartlett will receive his salary
for an additional 12 months from the date of termination, provided he does not
engage in certain competitive activities. Under the employment agreement, the
Company will nominate Mr. Bartlett for election as a member of its Board of
Directors as long as he remains employed, and Brenda C. Hall has agreed to
cause her shares of the Company's stock to be voted in favor of Mr. Bartlett's
election.
41
<PAGE>
In December 1996, the Company entered into an employment agreement with
Mordecai Levine in connection with the TeamAlliance Acquisition which provides
for a base salary of $125,000. For the period ending on the first, second and
third anniversary of Mr. Levine's employment with the Company, he is eligible
to receive a monthly bonus based upon gross margin dollars generated by the IS
Contract Services, which bonus aggregated $46,000 for the first six months of
1997. In addition, the Company granted to Mr. Levine stock options to purchase
92,000 shares of Common Stock of the Company at an exercise price of $5.10 per
share subject to certain repurchase rights of the Company. Mr. Levine is
currently vested in 52,000 of such shares, and he will vest in an additional
8,000 shares on December 2, 1997, with the balance of the shares vesting in a
series of 48 equal monthly installments commencing December 2, 1997. Upon Mr.
Levine's exercise of such options, the Company has agreed to pay to him an
amount equal to the aggregate exercise price of such options. Either the
Company or Mr. Levine may terminate Mr. Levine's employment with the Company
at any time and for any reason by giving the other party written notice. If
Mr. Levine voluntarily terminates employment with the Company for good cause
or is terminated other than for cause, he will receive his salary and bonus
for an additional six months from the date of termination.
In March 1997, the Company entered into an employment agreement with Brenda
C. Hall, which provides for a base salary of $260,000. Ms. Hall is also
eligible for an annual bonus subject to a maximum limitation of 75% of her
annual base salary. Either the Company or Ms. Hall may terminate Ms. Hall's
employment with the Company at any time by giving the other party 30 days
prior written notice. If Ms. Hall is terminated other than for cause or is
constructively discharged, and provided that she does not engage in certain
competitive activities, Ms. Hall will receive her base salary for an
additional 24 months from the date of termination, and the Company will pay
for her COBRA continuation coverage until the date that is the earlier of 12
months after her termination or the date on which her COBRA eligibility
ceases.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Pursuant to the Company's Certificate of Incorporation and under Delaware
law, directors of the Company are not liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty, except for
liability in connection with a breach of duty of loyalty, for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, for dividend payments or stock repurchase illegal
under Delaware law or any transaction in which a director has derived an
improper personal benefit.
The Company intends to enter into indemnification agreements with its
directors and executive officers.
42
<PAGE>
CERTAIN TRANSACTIONS
In January 1996, Brenda C. Hall, the Company's Chief Executive Officer and a
director of the Company, and Todd J. Kinion, a former officer and a current
director of the Company, borrowed from the Company $3.0 million and $2.0
million, respectively, pursuant to certain secured promissory notes. Each of
these promissory notes bears interest at an annual rate of the lesser of 6.91%
or the maximum amount permitted by law and become due and payable in January
2001 or upon the occurrence of certain events. The promissory notes were
initially secured by an aggregate of 2,000,000 shares of Common Stock owned by
Ms. Hall and Mr. Kinion. Pursuant to the terms of certain pledge agreements,
on each of July 30, 1996 and January 30, 1997, an aggregate of 400,000 such
shares were released. The promissory notes are currently secured by an
aggregate of 1,200,000 shares of Common stock (720,000 shares owned by Ms.
Hall and 480,000 shares owned by Mr. Kinion). Ms. Hall and Mr. Kinion may pay
their promissory notes by tendering to the Company 480,000 and 320,000 shares
of Common Stock, respectively. Ms. Hall and Mr. Kinion have agreed to tender
such shares in payment of their respective promissory notes upon completion of
this Offering.
In January 1996, the Company sold an aggregate of 1,600,000 shares of Series
A Preferred Stock, at a price of $6.25 per share, and in connection therewith
warrants to purchase an aggregate of up to 250,000 shares of Common Stock, at
an exercise price of $0.01 per share, to three entities affiliated with the
Sprout Group ("Sprout"). In connection with the purchase of the Series A
Preferred Stock, Brenda C. Hall, Todd J. Kinion and Sprout were granted
certain registration rights with regard to the shares of Common Stock held by
Ms. Hall and Mr. Kinion, the shares of Common Stock issuable upon conversion
of the shares of Series A Preferred Stock and the shares of Common Stock
issuable upon exercise of the warrants. The Company also sold warrants to
purchase an aggregate of up to 242,215 shares of Common Stock, at an exercise
price of $0.01 per share, to Sprout, which warrants are exercisable only in
the event that (i) Ms. Hall does not tender at least 480,000 shares of the
Company's Common Stock held by her in full payment of the secured promissory
note issued by her or (ii) Mr. Kinion does not tender at least 320,000 shares
of the Company's Common Stock held by him in full payment of the secured
promissory note issued by him. In connection with this transaction, Paul H.
Bartlett, a general partner of Sprout at the time, was appointed a director of
the Company in January 1996 and was subsequently succeeded by Kathleen D.
LaPorte, a general partner of Sprout, when Mr. Bartlett joined the Company as
President in October 1996. In addition, Ms. Hall and Mr. Kinion entered into a
Voting Trust Agreement with the Company, which has been subsequently amended
in connection with the settlement agreement and general release entered into
between the Company and Mr. Kinion and which terminates upon the occurrence of
certain events, including the consummation of the sale of the shares offered
hereby. See "Management--Employment Agreements; Termination of Employment and
Change in Control Arrangements."
In July 1996, the Company granted Jon H. Rowberry, a non-employee member of
the Board of Directors, an option to acquire 25,000 of shares of Common Stock
of the Company at an exercise price of $4.00 per share. This option vests over
five years.
In August 1996, the Company granted to Rita S. Hazell, Vice President, R&D
Contract Services, a loan in the principal amount of $100,000 plus interest.
Such loan is secured by a deed of trust in favor of the Company on the real
property purchased partially with such borrowed funds. The principal amount of
the loan and any accrued interest thereon will be forgiven by the Company
ratably over four years so long as Ms. Hazell remains employed by the Company.
In October 1996, the Company entered into a settlement agreement and general
release with Todd J. Kinion, a former officer and a current director of the
Company, which obligates the Company to make monthly payments of $9,033 to him
until the earlier of February 29, 1998 or the occurrence of certain events. A
lump sum payment of $11,239, representing full payment of all unpaid bonus
obligations and business expense reimbursements, was made to Mr. Kinion in
connection with the settlement agreement. In addition, as part of the terms of
the settlement agreement, Mr. Kinion agreed to deposit 1,795,100 of the shares
of Common Stock he holds with Ms. Hall, as trustee of the voting trust (the
"Voting Trust") created pursuant to that certain Voting Trust Agreement dated
January 30, 1996 among the Company, Brenda C. Hall, and Mr. Kinion and agreed
to amend
43
<PAGE>
the Voting Trust to grant Ms. Hall as voting trustee, the right to vote such
shares in all matters with certain exceptions. The Voting Trust Agreement and
the Voting Trust created thereby terminate upon the occurrence of certain
events including the consummation of the sale of the shares offered hereby.
Keith Corbin resigned from the Company as Chief Financial Officer effective
December 31, 1996, pursuant to a consulting and settlement agreement, which
obligates the Company to make monthly payments to
Mr. Corbin of $13,333 per month through May 1997 and $3,333 per week from May
1997 through August 1997 provided that he continues to provide services to the
Company and is not terminated for cause. In addition, as part of the terms of
the consulting and settlement agreement, Mr. Corbin's incentive stock option
will continue to vest through August 1997 provided that he continues to
provide services to the Company and is not terminated for cause.
In December 1996, a wholly owned subsidiary of the Company acquired certain
assets of TeamAlliance Technology Partners, L.P. ("TA") and related entities
for a total purchase price of approximately $8.6 million pursuant to an Asset
Purchase Agreement dated as of November 26, 1996 by and among the Company, TA
Acquisition Company, TA, TeamAlliance Technology Partners, Inc., Team Visions,
Inc., certain limited liability companies affiliated with TA, Richard F.
Harmon, Mordecai Levine and Frederick Lenz. Messrs. Harmon and Levine are
officers and directors of TeamAlliance Technology Partners, Inc., the General
Partner of TA. In connection with the TeamAlliance Acquisition, Messrs. Harmon
and Levine each entered into an Employment Agreement with the Company and were
granted options to acquire shares of Common Stock of the Company. See
"Management--Employment Agreements, Termination of Employment and Change in
Control Arrangements."
The Company entered into employment agreements with each of Paul H. Bartlett
and Brenda C. Hall in October 1996 and March 1997, respectively. See
"Management--Employment Agreements, Termination of Employment and Change in
Control Arrangements."
In June 1997, Richard Harmon terminated his employment with the Company. Mr.
Harmon served as Vice President, Internet Services of the Company from
December 1996. Pursuant to the terms of the employment agreement entered into
between the Company and Mr. Harmon in December 1996 in connection with the
TeamAlliance Acquisition, the Company is obligated to continue to pay Mr.
Harmon his base annual salary of $125,000 and annual bonus of not less than
$75,000 for 180 days following his termination. In addition, pursuant to the
terms of the employment agreement, the Company paid to Mr. Harmon $265,200,
the amount equal to the aggregate exercise price of the 52,000 stock options
he exercised in July 1997.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been otherwise
obtained from unaffiliated third parties. All future transactions, including
loans (if any), between the Company and its officers, directors and principal
stockholders and their affiliates will be approved by a majority of the Board
of Directors, including a majority of the independent and disinterested
outside directors of the Board of Directors, and will be on terms no less
favorable to the Company than could be obtained from unaffiliated third
parties.
44
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of June 30, 1997, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, by:
(i) each person (or group of affiliated persons) who is known by the Company
to own beneficially more than 5% of the Company's Common Stock; (ii) each of
the Company's directors; (iii) each of the Named Executive Officers; (iv) all
current executive officers and directors as a group and (v) each Selling
Stockholder. Unless otherwise indicated below, to the knowledge of the
Company, all persons listed below have sole voting and investment power with
respect to their shares of Common Stock, subject to community property laws
where applicable. Except as otherwise provided below, the address of each
person listed below is c/o Hall, Kinion & Associates, Inc., 19925 Stevens
Creek Boulevard, Cupertino, CA 95014.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE NUMBER OF AFTER THE OFFERING
OFFERING (1) SHARES TO BE (1)
NAME AND ADDRESS OF -------------------- SOLD IN THE --------------------
BENEFICIAL OWNER SHARES PERCENTAGE OFFERING SHARES PERCENTAGE
- ----------------------- --------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Brenda C. Hall (2)..... 3,432,800 47.2% 210,000 3,182,800 35.5%
Todd J. Kinion (3)..... 1,994,100 27.4% 131,666 1,827,434 20.5%
36 Playa Boulevard
La Selva Beach, CA
95076
Entities Affiliated
with the Sprout Group
(4) 1,911,666 25.4% 416,667 1,494,999 16.3%
3000 Sand Hill Road
Bldg. 4, Suite 270
Menlo Park, CA 94025-
7114
Kathleen D. LaPorte
(5)................... 1,911,666 25.4% 416,667 1,494,999 16.3%
3000 Sand Hill Road
Bldg. 4, Suite 270
Menlo Park, CA 94025-
7114
Paul H. Bartlett (6)... 974,000 11.8% 974,000 9.8%
Keith Corbin (7)....... 92,096 1.3% 92,096 1.0%
Craig J. Silverman (8). 50,000 * 50,000 *
Rita S. Hazell (9)..... 24,000 * 24,000 *
Jon H. Rowberry (10)... 25,000 * 25,000 *
All executive officers
and directors as a
group (9 persons)
(11).................. 8,687,566 98.4% 7,839,233 74.3%
Other Selling
Stockholders
- -------------
Dean Call Voting Trust
(12).................. 399,996 5.5% 40,000 359,996 4.0%
Kinion Voting Trust
(13).................. 199,000 2.7% 35,000 164,000 1.8%
Richard Swanson........ 10,000 * 10,000 0 0
c/o Camerlengo & John-
son
500 Airport Blvd.,
Suite 230
Burlingame, CA 94010
Camerlengo & Johnson... 5,000 * 5,000 0 0
500 Airport Blvd.,
Suite 230
Burlingame, CA 94010
</TABLE>
- --------
* Less than 1%.
(1) Percentage of beneficial ownership is calculated assuming 7,266,952
shares of Common Stock were outstanding on June 30, 1997. This percentage
also includes Common Stock of which such individual or entity has the
right to acquire beneficial ownership within 60 days of June 30, 1997,
including but not limited to the exercise of an option; however, such
Common Stock shall not be deemed outstanding for the purpose of computing
the percentage owned by any other individual or entity. The number of
shares outstanding after this Offering includes the 1,666,667 shares of
Common Stock being offered for sale by
45
<PAGE>
the Company in this Offering, and assumes no exercise of the Underwriters'
over-allotment option. See "Underwriting."
(2) Includes 399,996 shares held by the Dean Call Voting Trust and 28,500
shares held by Virgil Hall. Ms. Hall is co-trustee of the Dean Call
Voting Trust and Virgil Hall is Ms. Hall's spouse. Excludes 1,795,100
shares held by Todd J. Kinion and deposited into the Voting Trust over
which Ms. Hall has voting power pursuant to the terms of the settlement
agreement between the Company and Mr. Kinion; such Voting Trust
terminates upon the occurrence of certain events, including the
consummation of the sale of shares offered hereby. Also excludes 480,000
shares pledged in connection with a secured promissory note executed by
Ms. Hall. See "Certain Transactions." If the over-allotment is exercised
in full, Ms. Hall will sell an additional 113,175 shares.
(3) Includes 199,000 shares held by the Kinion Voting Trust, but excludes
320,000 shares pledged in connection with a secured promissory note
executed by Mr. Kinion. If the overallotment is exercised in full, Mr.
Kinion will sell an additional 75,450 shares. See "Certain Transactions."
(4) Includes 1,488,882, 151,625 and 21,159 shares of Common Stock held by
Sprout Growth II, L.P. ("Sprout II"), DLJ Capital Corporation ("DLJ") and
Sprout CEO Fund, L.P. ("Sprout CEO"), respectively. Also includes
warrants to purchase 224,004, 22,812 and 3,184 shares of Common Stock
held by Sprout II, DLJ and Sprout CEO, respectively. Excludes warrants to
purchase an aggregate of up to 242,215 shares of Common Stock, which are
exercisable only in the event that Ms. Hall does not tender at least
480,000 shares or Mr. Kinion does not tender at least 320,000 shares in
full payment of their respective promissory notes. See "Certain
Transactions." DLJ is the general partner of Sprout CEO. Ms. LaPorte, a
director of the Company, is a general partner of the Sprout Group. Ms.
LaPorte disclaims beneficial ownership of the shares held by such
entities, except to the extent of her pecuniary interest therein. Ms.
LaPorte may be deemed to exercise voting and investment power over the
shares held by affiliates of the Sprout Group. If the overallotment is
exercised in full, Sprout II, DLJ and Sprout CEO will sell an additional
188,625 shares.
(5) Includes shares described in Note (4) above. Ms. LaPorte, a director of
the Company, disclaims beneficial ownership of the shares held by such
entities, except to the extent of her pecuniary interest therein.
(6) Represents shares in the form of stock options exercisable within 60 days
of June 30, 1997.
(7) Includes 46,048 shares in the form of stock options exercisable within 60
days of June 30, 1997.
(8) Represents shares in the form of stock options exercisable within 60 days
of June 30, 1997.
(9) Ms. Hazell holds an option to purchase an aggregate of 60,000 shares of
Common Stock, of which 24,000 shares are exercisable within 60 days of
June 30, 1997.
(10) Represents shares in the form of stock options exercisable within 60 days
of June 30, 1997. Mr. Rowberry's mailing address is c/o Franklin Covey,
2200 West Parkway Boulevard, Salt Lake City, Utah 84119.
(11) Includes warrants to purchase 250,000 shares of Common Stock and
1,308,000 shares in the form of stock options exercisable within 60 days
of June 30, 1997.
(12)See Note 2 above.
(13)See Note 3 above.
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company will consist of 100,000,000
shares of Common Stock, par value $0.001 per share, and 10,000,000 shares of
Preferred Stock, par value $0.001 per share, after giving effect to the
amendment of the Company's Certificate of Incorporation to delete references
to Series A Preferred Stock which will occur upon conversion of such Preferred
Stock into Common Stock upon the closing of this Offering and the subsequent
authorization of shares of undesignated Preferred Stock as described below.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Amended and
Restated Certificate of Incorporation, which is included as an exhibit to the
Registration Statement of which this Prospectus is a part, and by the
provisions of applicable law.
COMMON STOCK
As of June 30, 1997, there were 6,400,288 shares of Common Stock outstanding
that were held of record by approximately 16 stockholders, as well as options
and warrants to purchase an aggregate of approximately 2,688,186 shares of
Common Stock. The holders of Common Stock are entitled to one vote per share
on all matters to be voted upon by the stockholders. Subject to preferences
that may be applicable to outstanding shares of Preferred Stock, if any, the
holders of Common Stock are entitled to receive ratably such dividends as may
be declared from time to time by the Board of Directors out of funds legally
available therefor. In the event of the liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to share ratably in
all assets remaining after payment of liabilities, subject to prior
liquidation rights of Preferred Stock, if any then outstanding. The Common
Stock has no preemptive conversion rights or other subscription rights. There
are not redemption or sinking funds provisions applicable to the Common Stock.
All outstanding shares of Common Stock are fully paid and non-assessable, and
the shares of Common Stock to be outstanding upon completion of this Offering
will be fully paid and non-assessable.
PREFERRED STOCK
As of June 30, 1997, there were 1,600,000 shares of Series A Preferred Stock
of the Company outstanding. Such shares of Series A Preferred Stock will be
converted into Common Stock upon the closing of this Offering, with a
conversion rate that adjusts based on the per share price of the Common Stock
in this Offering. If the per share offering price is $12.50, or more, each
share of Series A Preferred Stock will convert into one share of Common Stock.
If the per share offering price is less than $12.50, each share of Series A
Preferred Stock will instead convert into that number of shares of Common
Stock equal to $12.50 divided by the per share offering price. If the per
share offering price is $12.00, the 1,600,000 shares of outstanding Series A
Preferred Stock will convert into 1,666,667 shares of Common Stock,
representing a conversion rate of approximately 1.0416 to one. If the per
share offering price is $11.00, the Series A Preferred Stock will convert into
1,818,182 shares of Common Stock, representing a conversion rate of
approximately 1.1363 to one.
Effective upon the closing of this Offering and the conversion of
outstanding Series A Preferred Stock into Common Stock, the Company's
Certificate of Incorporation will authorize 10,000,000 shares of Preferred
Stock. The Board of Directors has the authority to issue the Preferred Stock
in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the
designation of such series, without further vote or action by the
stockholders. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the stockholders and may adversely affect the voting and other
rights of the holders of Common Stock. The issuance of Preferred Stock with
voting and conversion rights may adversely affect the voting power of the
holders of Common Stock, including the loss of voting control to others. The
Company has no present plan to issue Preferred Stock.
47
<PAGE>
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION,
BYLAWS AND DELAWARE LAW
Certificate of Incorporation and Bylaws
Upon completion of this Offering, the Company's Amended and Restated
Certificate of Incorporation (the "Certificate") and Bylaws will contain
provisions that could have the effect of delaying, deferring or preventing an
unsolicited change in control of the Company, which may adversely affect the
market price of the Common Stock or the ability of shareholders to participate
in a transaction in which they might otherwise receive a premium for their
shares over the then-current market price. Such provisions also may have the
effect of preventing changes in the management of the Company. These
provisions provide that all stockholder action must be taken at an annual or
special meeting of the stockholders, that only the Board of Directors may call
special meetings of the stockholders and that the Board of Directors be
divided into three classes to serve for staggered three-year terms. In
addition, the Certificate authorizes the Board of Directors to issue up to
10,000,000 shares of preferred stock ("Preferred Stock") without stockholder
approval and on such terms as the Board of Directors may determine. Although
no shares of Preferred Stock are currently outstanding and the Company has no
present plans to issue any shares of Preferred Stock, the rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of holders of any Preferred Stock that may be issued in the future.
See "Risk Factors--Effect of Certain Charter Provisions; Anti-Takeover Effects
of Certificate of Incorporation, Bylaws and Delaware Law."
Delaware Takeover Statute
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that
such stockholder became an interested stockholder, unless: (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction that
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or (iii) on or subsequent to such date, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is
not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested stockholder; (iii) subject to
certain exceptions, any transaction that results in the issuance or transfer
by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation that has the
effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder; or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.
REGISTRATION RIGHTS
After this Offering, the holders of 5,702,687 shares of Common Stock
(5,325,437 if the over-allotment is exercised in full) and the holders of
warrants to purchase 250,000 shares of Common Stock will be entitled upon
expiration of lock-up agreements with the Underwriters to certain rights with
respect to the registration of such
48
<PAGE>
shares under the Securities Act. Under the terms of the agreement between the
Company and the holders of such registrable securities, if the Company
proposes to register any of its securities under the Securities Act, either
for its own account or for the account of other security holders exercising
registration rights, such holders are entitled to notice of such registration
and are entitled to include shares of such Common Stock therein. Certain of
such stockholders benefiting from these rights may also require the Company to
file a registration statement under the Securities Act at the Company's
expense with respect to their shares of Common Stock, and the Company is
required to use its diligent reasonable efforts to effect such registration.
Further, holders may require the Company to file additional registration
statements on Form S-3 at the Company's expense. These rights are subject to
certain conditions and limitations, among them the right of the underwriters
of an offering to limit the number of shares included in such registration in
certain circumstances.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is U.S. Stock
Transfer. Its telephone number is (818) 502-1404.
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 8,933,619 shares of
Common Stock outstanding (assuming no exercise of the Underwriters' over-
allotment option, of options or of warrants). Of these shares, the 2,515,000
shares sold in this Offering will be freely tradeable without restriction or
further registration under the Securities Act, except that any shares
purchased by "affiliates" of the Company, as that term is defined under the
Securities Act ("Affiliates"), may generally only be sold in compliance with
the limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
Upon completion of this Offering, the remaining 6,418,619 shares of Common
Stock are deemed "restricted securities" under Rule 144. Of these shares,
28,550 shares will be eligible for sale in the public market upon the
effective date of the registration statement filed in connection with this
Offering in reliance on Rule 144(k) of the Securities Act. Beginning 180 days
after the date of this Prospectus (or earlier with the consent of Montgomery
Securities), upon the expiration of transfer restrictions specified in
existing agreements with the Company or lock-up agreements with the
representatives of the underwriters, approximately 6,343,981 shares will be
eligible for sale in reliance upon Rule 144 or Rule 701 promulgated under the
Securities Act, some of which will be subject to the volume and other resale
limitations of Rule 144, other than the one year holding period. The remaining
shares are eligible for sale in the public market more than 180 days after the
date of this Prospectus.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this Offering, a person (or persons whose shares are
aggregated) who has beneficially owned Restricted Shares for at least one year
(including the holding period of any prior owner other than an Affiliate),
including a person who may be deemed an Affiliate of the Company, is entitled
to sell within any three-month period a number of shares that does not exceed
the greater of (i) 1% of the then outstanding shares of the Company's Common
Stock or (ii) the average weekly trading volume of the Company's Common Stock
in the over the counter market during the four calendar weeks preceding the
date on which notice of the sale is filed with the Securities and Exchange
Commission. Sales under Rule 144 are also subject to certain manner of sales
provisions, notice requirements and the availability of current public
information about the Company. Any person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days preceding a sale, and who owns shares within the
definition of "restricted securities" under Rule 144 that were purchased from
the Company (or any affiliate) at least two years, would be entitled to sell
such shares under Rule 144(k) without regard to the volume limitations, manner
of sale provision, public information requirements or notice requirements.
However, the transfer agent may require an opinion of counsel that a proposed
sale of shares comes within the terms of Rule 144 of the Securities Act prior
to effecting a transfer of such shares. Rule 701 under the Securities Act
provides that shares of Common Stock acquired on the exercise of outstanding
options may be resold by persons other than Affiliates, beginning 90 days
after the date of this Prospectus, subject only to the manner of sale
provisions of Rule 144, and by Affiliates, beginning 90 days after the date of
this Prospectus, subject to all provisions of Rule 144 except its one year
minimum holding period.
Prior to this Offering, there has been no public market for the Common Stock
of the Company and no predictions can be made of the effect, if any, that the
sale or availability for sale of shares of additional Common Stock will have
on the market price of the Common Stock. Nevertheless, sales of substantial
amounts of such shares in the public market, or the perception that such sales
could occur, could adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities.
OPTIONS
As of June 30, 1997, options to purchase a total of 2,438,186 shares of
Common Stock were outstanding. See "--Lock-up Agreements." In addition,
300,000 shares were available for future grant under the 1997 Plan
50
<PAGE>
as of June 30, 1997. Shares of Common Stock subject to outstanding options,
including options granted under the 1996 Plan, which expire or terminate prior
to exercise will be available or future issuance under the 1997 Plan. An
additional number of shares of Common Stock equal to 3% of the number of
shares of Common Stock outstanding on the first day of 1998, 1999 and 2000
will also become available for future grant under the 1997 Plan. Furthermore,
150,000 shares have been reserved for issuance under the Purchase Plan and
350,000 shares have been reserved for issuance under the IT Professional Plan.
"Management--1997 Stock Option Plan," "IT Professional Plan" "--Employee Stock
Purchase Plan," and Note 8 to Consolidated Financial Statements.
Rule 701 under the Securities Act provides that shares of Common Stock
acquired on the exercise of outstanding options may be resold by persons other
than Affiliates, beginning 90 days after the date of this Prospectus, subject
only to the manner of sale provisions of Rule 144, and by Affiliates,
beginning 90 days after the date of this Prospectus, subject to all provisions
of Rule 144 except its one year minimum holding period. The Company intends to
file one or more registration statements on Form S-8 under the Securities Act
to register all shares of Common Stock subject to outstanding stock options
and Common Stock issued or issuable pursuant to the Company's 1997 Plan. The
Company expects to file the registration statement on or shortly after the
effectiveness of this Offering covering 3,238,186 shares of Common Stock
subject to outstanding stock options or reserved for issuance under the 1997
Plan, IT Professional Plan and Employee Stock Purchase Plan as well as stock
options granted outside such plans. Such registration statements are expected
to become effective upon filing. Shares covered by these registration
statements will thereupon be eligible for sale in the public markets, subject
to the lock-up agreements, if applicable.
LOCK-UP AGREEMENTS
All officers and directors and certain holders of Common Stock and holders
of options and warrants to purchase Common Stock have agreed pursuant to
certain "lock-up" agreements that they will not offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase, or otherwise
dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible or exercisable or exchangeable for Common Stock, or
enter into any swap or similar agreement that transfers, in whole or in part,
the economic risk of ownership of the Common Stock for a period 180 days after
the transfer or date of this Prospectus without the prior written consent of
Montgomery Securities. All other holders of Common Stock and options to
purchase common Stock have agreed pursuant to existing agreements with the
Company not to sell or otherwise transfer or dispose of any Common Stock for a
period of 180 days after the effective date of this Offering.
51
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), represented by Montgomery
Securities, Robert W. Baird & Co. Incorporated and The Robinson-Humphrey
Company, Inc. (the "Representatives"), have severally agreed, subject to the
terms and conditions set forth in the underwriting agreement (the
"Underwriting Agreement"), by and between the Company and the Underwriters to
purchase from the Company and the Selling Stockholders the aggregate number of
shares of Common Stock indicated below opposite their respective names, at the
initial public offering price less the underwriting discount set forth on the
cover page of this Prospectus. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent
and that the Underwriters are committed to purchase all of the shares of
Common Stock, if they purchase any.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Montgomery Securities..............................................
Robert W. Baird & Co. Incorporated.................................
The Robinson-Humphrey Company, Inc. ...............................
---------
Total............................................................ 2,515,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters initially propose to offer the Common Stock to the
public on the terms set forth on the cover page of this Prospectus. The
Underwriters may allow selected dealers a concession of not more than $ per
share; and the Underwriters may allow, and such dealers may reallow, a
concession of not more than $ per share to certain other dealers. After the
initial public offering, the offering price and other selling terms may be
changed by the Representatives. The Common Stock is offered subject to receipt
and acceptance by the Underwriters, and to certain other conditions, including
the right to reject orders in whole or in part.
The Selling Stockholders have granted an option to the Underwriters,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to a maximum of 377,250 additional shares of Common Stock,
respectively, to cover over-allotments, if any, at the same price per share as
the initial shares to be purchased by the Underwriters. To the extent that the
Underwriters exercise such option, the Underwriters will be committed, subject
to certain conditions, to purchase such additional shares in approximately the
same proportion as set forth in the above table. The Underwriters may purchase
such shares only to cover over-allotments made in connection with this
Offering.
The Company, the Selling Stockholders and the Company's executive officers
and directors have agreed that for a period of 180 days after the date of this
Prospectus they will not, without the prior written consent of Montgomery
Securities, directly or indirectly offer for sale, sell, solicit an offer to
sell, contract or grant an option to sell, pledge, transfer, establish an open
put equivalent position or otherwise dispose of any shares of Common Stock,
options or warrants to acquire shares of Common Stock or securities
exchangeable or exercisable for or convertible into shares of Common Stock.
The Company has also agreed not to issue, offer, sell, grant options to
purchase or otherwise dispose of any of the Company's equity securities for a
period of 180 days after the effective date of this Offering without the prior
written consent of Montgomery Securities, other than pursuant to the 1997
Stock Option Plan, IT Professional Plan and the Employee Stock Purchase Plan
and certain issuances in connection with acquisitions of businesses. In
evaluating any request for a waiver of the 180-day lock-up period, Montgomery
Securities will consider, in accordance with their customary practice, all
relevant facts and circumstances at the time of the request, including,
without limitation, the recent trading market for the Common Stock, the size
of the request and, with respect to a request by the Company to issue
additional equity securities, the purpose of such an issuance. See "Shares
Eligible for Future Sale."
In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common
52
<PAGE>
Stock. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M under the Securities and Exchange Act
of 1934, pursuant to which such persons may bid for or purchase Common Stock
for the purpose of stabilizing its market price. The Underwriters also may
create a short position for the account of the Underwriters by selling more
Common Stock in connection with the Offering than they are committed to
purchase from the Company and, in such case, may purchase Common Stock in the
open market following completion of the Offering to cover all or a portion of
such short position. The Underwriters may also cover all or a portion of such
short position, up to 377,250 shares of Common Stock, by exercising the
Underwriters' over-allotment option referred to above. In addition, Montgomery
Securities, may impose "penalty bids" under contractual arrangements with the
Underwriters whereby it may reclaim from an Underwriter (or dealer
participating in the offering) for the account of the other Underwriters, the
selling concession with respect to Common Stock that is distributed in the
Offering but subsequently purchased for the account of the Underwriters in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the price of the Common Stock at a level above that which
might otherwise prevail in the open market. None of the transactions described
in this paragraph is required, and, if they are undertaken, they may be
discontinued at any time.
The Representatives have informed the Company that the Underwriters do not
expect to make sales of Common Stock offered by this Prospectus to accounts
over which they exercise discretionary authority in excess of 5% of the number
of shares of Common Stock offered hereby.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock
will be determined by negotiations between the Company and the
Representatives. Among the factors to be considered in such negotiations will
be prevailing market conditions, the results of operations of the Company in
recent periods, the market capitalizations and stages of development of other
companies that the Company and the Representatives believe to be comparable to
the Company, estimates of the business potential of the Company, the present
state of the Company's development and other factors deemed relevant. See
"Risk Factors--No Prior Trading Market for Common Stock; Potential Volatility
of Stock Price."
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
Menlo Park, California. Certain legal matters in connection with this Offering
will be passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California.
53
<PAGE>
EXPERTS
The consolidated financial statements of the Company as of December 31, 1996
and for each of the three years in the period ended December 31, 1996, and the
consolidated financial statements of TeamAlliance as of December 1, 1996 and
for the eleven-month period then ended appearing in this Prospectus and the
related financial statement schedule included elsewhere in the Registration
Statement have been audited by Deloitte & Touche LLP, independent auditors, as
set forth in their reports appearing herein and elsewhere in the Registration
Statement, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of TeamAlliance as of December 31,
1994 and 1995, and for the period from inception (May 1, 1994) through
December 31, 1994 and for the year ended December 31, 1995 included in this
prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules to the Registration
Statement. For further information with respect to the Company and such Common
Stock offered hereby, reference is made to the Registration Statement and the
exhibits and schedules filed as a part of the Registration Statement.
Statements contained in this Prospectus concerning the contents of any
contract or any other document referred to are not necessarily complete;
reference is made in each instance to the copy of such contract or document
filed as an exhibit to the Registration Statement. Each such statement is
qualified in all respects by such reference to such exhibit. The Registration
Statement, including exhibits and schedules thereto, may be inspected without
charge at the Commission's principal office in Washington, D.C., and at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of all or any part of such
materials may be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a web site that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's web site
is http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent public accountants and
with quarterly reports for the first three fiscal quarters of each fiscal year
containing unaudited financial information.
54
<PAGE>
INDEX TO CONSOLIDATED AND PRO FORMA COMBINING
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES:
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets at December 31, 1995 and 1996 and June 30,
1997 (Unaudited)....................................................... F-3
Consolidated Statements of Income for the Years Ended December 31, 1994,
1995 and 1996 and the Six Months Ended June 30, 1996 and 1997
(Unaudited)............................................................ F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1994, 1995 and 1996 and the Six Months Ended June
30, 1997 (Unaudited)................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994, 1995 and 1996 and the Six Months Ended June 30, 1996 and 1997
(Unaudited)............................................................ F-6
Notes to Consolidated Financial Statements.............................. F-7
TEAMALLIANCE TECHNOLOGY PARTNERS, L.P. AND SUBSIDIARIES:
Report of Independent Public Accountants................................ F-16
Independent Auditors' Report............................................ F-17
Consolidated Balance Sheets at December 31, 1994 and 1995 and December
1, 1996................................................................ F-18
Consolidated Statements of Income for the Period from Inception (May 1,
1994) through December 31, 1994 and for the Year Ended December 31,
1995 and for the Period from January 1, 1996 through December 1, 1996.. F-19
Consolidated Statement of Changes in Partners' Capital for the Period
from Inception (May 1, 1994) through December 31, 1994 and for the Year
Ended December 31, 1995 and for the Period from January 1, 1996 through
December 1, 1996....................................................... F-20
Consolidated Statements of Cash Flows for the Period from Inception (May
1, 1994) through December 31, 1994, for the Year Ended December 31,
1995 and for the Period from January 1, 1996 through December 1, 1996.. F-21
Notes to Consolidated Financial Statements.............................. F-22
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME:
Pro Forma Condensed Combining Statement of Income for the Year Ended
December 31, 1996 (Unaudited).......................................... F-27
Notes to Unaudited Pro Forma Condensed Combining Statement of Income for
the Year Ended December 31, 1996....................................... F-28
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Hall, Kinion & Associates, Inc.:
We have audited the accompanying consolidated balance sheets of Hall, Kinion
& Associates, Inc. and Subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of income, stockholders' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Hall, Kinion & Associates, Inc. and
Subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
San Jose, California
May 16, 1997
F-2
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- JUNE 30, 1997
1995 1996 1997 PRO FORMA
---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(NOTE 1)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and equivalents....... $ 4,000 $ 56,000 $ 161,000
Accounts receivable, net of
allowance for doubtful
accounts of $296,000 in
1995, and $403,000 in 1996
and $354,000 in 1997...... 4,270,000 7,621,000 10,814,000
Prepaid expenses and other
current assets............ 72,000 490,000 491,000
Prepaid income taxes....... -- 786,000 190,000
Deferred income taxes...... 279,000 340,000 612,000
---------- ----------- -----------
Total current assets..... 4,625,000 9,293,000 12,268,000
Property and equipment, net.. 834,000 4,431,000 4,959,000
Goodwill, net................ -- 9,054,000 8,903,000
Deferred IPO costs........... -- -- 403,000
Other assets................. 221,000 216,000 293,000
---------- ----------- -----------
Total assets............. $5,680,000 $22,994,000 $26,826,000
========== =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current Liabilities:
Cash overdraft............. $ 338,000 $ 1,229,000 $ 1,187,000
Line of credit............. 1,734,000 418,000 3,828,000
Accounts payable........... 957,000 1,516,000 1,969,000
Accrued salaries,
commissions and related
payroll taxes............. 1,550,000 2,255,000 3,093,000
Accrued liabilities........ 15,000 1,301,000 656,000
Income taxes payable....... 145,000 -- --
Current portion of long-
term debt................. -- 2,385,000 2,385,000
---------- ----------- -----------
Total current
liabilities............. 4,739,000 9,104,000 13,118,000
Long-term debt............... -- 6,738,000 5,998,000
---------- ----------- -----------
Total liabilities........ 4,739,000 15,842,000 19,116,000
---------- ----------- -----------
Commitments and contingencies
(Notes 6 and 10)
Redeemable convertible
preferred stock; 1,600,000
shares authorized, issued,
and outstanding (liquidation
preference $20,000,000, Note
7).......................... -- 9,900,000 9,900,000 $ --
---------- ----------- ----------- -----------
Stockholders' Equity
(deficit):
Common stock; 10,000,000
shares authorized; shares
outstanding: 1995--
6,282,000; 1996--
6,339,000; 1997--6,400,000
(8,000,000 pro forma)..... 81,000 357,000 521,000 10,421,000
Stockholder notes
receivable................ -- (5,323,000) (5,496,000) (5,496,000)
Accumulated translation
adjustment................ -- (3,000) 9,000 9,000
Retained earnings.......... 860,000 2,221,000 2,776,000 2,776,000
---------- ----------- ----------- -----------
Total stockholders'
equity (deficit)........ 941,000 (2,748,000) (2,190,000) 7,710,000
---------- ----------- ----------- -----------
Total liabilities and
stockholders' equity
(deficit)................... $5,680,000 $22,994,000 $26,826,000 $26,826,000
========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues:
Contract services..... $14,222,000 $25,660,000 $42,254,000 $19,039,000 $37,422,000
Permanent placement... 1,746,000 3,725,000 8,317,000 3,701,000 5,269,000
----------- ----------- ----------- ----------- -----------
Net revenues........ 15,968,000 29,385,000 50,571,000 22,740,000 42,691,000
Cost of contract
services............... 10,728,000 19,209,000 30,342,000 13,639,000 25,933,000
----------- ----------- ----------- ----------- -----------
Gross profit............ 5,240,000 10,176,000 20,229,000 9,101,000 16,758,000
Selling, general and
administrative
expenses............... 4,978,000 8,869,000 17,412,000 7,569,000 15,596,000
Other operating
expenses............... -- -- 821,000 -- --
----------- ----------- ----------- ----------- -----------
Total operating
expenses........... 4,978,000 8,869,000 18,233,000 7,569,000 15,596,000
----------- ----------- ----------- ----------- -----------
Income from operations.. 262,000 1,307,000 1,996,000 1,532,000 1,162,000
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest income....... -- -- 434,000 207,000 172,000
Interest expense...... (122,000) (122,000) (65,000) (29,000) (345,000)
Other expenses, net... (81,000) (34,000) -- 5,000 (24,000)
----------- ----------- ----------- ----------- -----------
Total other income
(expenses), net.... (203,000) (156,000) 369,000 183,000 (197,000)
----------- ----------- ----------- ----------- -----------
Income before income
taxes.................. 59,000 1,151,000 2,365,000 1,715,000 965,000
Income taxes............ 26,000 469,000 1,004,000 687,000 410,000
----------- ----------- ----------- ----------- -----------
Net income.............. $ 33,000 $ 682,000 $ 1,361,000 $ 1,028,000 $ 555,000
=========== =========== =========== =========== ===========
Net income per share.... $ -- $ 0.09 $ 0.15 $ 0.11 $ 0.06
=========== =========== =========== =========== ===========
Shares used in per share
computation............ 7,227,000 7,272,000 9,351,000 8,941,000 9,503,000
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK STOCKHOLDER ACCUMULATED
------------------ NOTES TRANSLATION RETAINED
SHARES AMOUNT RECEIVABLE ADJUSTMENT EARNINGS TOTAL
--------- -------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, January 1,
1994................... 6,282,000 $ 81,000 $ -- $ -- $ 145,000 $ 226,000
Net income.............. -- -- -- -- 33,000 33,000
--------- -------- ----------- ------- ---------- -----------
BALANCE, December 31,
1994................... 6,282,000 81,000 -- -- 178,000 259,000
Net income.............. -- -- -- -- 682,000 682,000
--------- -------- ----------- ------- ---------- -----------
BALANCE, December 31,
1995................... 6,282,000 81,000 -- -- 860,000 941,000
Notes to stockholders
secured by stock....... -- -- (5,000,000) -- -- (5,000,000)
Interest on stockholder
notes receivable....... -- -- (317,000) -- -- (317,000)
Issuance of common stock
in connection with
acquisition............ 52,000 260,000 -- -- -- 260,000
Exercise of stock
options................ 5,000 6,000 (6,000) -- -- --
Compensation charge for
acceleration of the
vesting of stock
options................ -- 10,000 -- -- -- 10,000
Accumulated translation
adjustment............. -- -- -- (3,000) -- (3,000)
Net income.............. -- -- -- -- 1,361,000 1,361,000
--------- -------- ----------- ------- ---------- -----------
BALANCES, December 31,
1996................... 6,339,000 357,000 (5,323,000) (3,000) 2,221,000 (2,748,000)
Exercise of stock
options (Unaudited).... 61,000 164,000 -- -- -- 164,000
Interest on stockholder
notes receivable
(Unaudited)............ -- -- (173,000) -- -- (173,000)
Accumulated translation
adjustment (Unaudited). -- -- -- 12,000 -- 12,000
Net income (Unaudited).. -- -- -- -- 555,000 555,000
--------- -------- ----------- ------- ---------- -----------
BALANCES, June 30, 1997
(Unaudited)............ 6,400,000 $521,000 $(5,496,000) $ 9,000 $2,776,000 $(2,190,000)
========= ======== =========== ======= ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------- ------------------------
1994 1995 1996 1996 1997
--------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............. $ 33,000 $ 682,000 $ 1,361,000 $ 1,028,000 $ 555,000
Adjustments to
reconcile net income
to net cash provided
by (used for)
operating activities:
Depreciation and
amortization......... 86,000 208,000 448,000 160,000 570,000
Deferred income taxes. (103,000) (173,000) (61,000) -- (272,000)
Compensation expense
on stock options..... -- -- 10,000 -- --
Interest on
stockholder notes
receivable........... -- -- (317,000) (144,000) (173,000)
Changes in assets and
liabilities:
Accounts receivable.. (639,000) (2,410,000) (3,352,000) (695,000) (3,193,000)
Prepaid expenses and
other assets........ 114,000 25,000 (482,000) (28,000) (61,000)
Prepaid income taxes. -- -- (786,000) -- 596,000
Accounts payable and
accrued expenses.... 265,000 1,411,000 1,754,000 621,000 807,000
Income taxes payable. 64,000 64,000 (145,000) (45,000) --
--------- ----------- ----------- ----------- -----------
Net cash provided by
(used for)
operating
activities......... (180,000) (193,000) (1,570,000) 897,000 (1,171,000)
--------- ----------- ----------- ----------- -----------
Cash flows from
investing activities:
Purchase of property
and equipment......... (332,000) (634,000) (2,581,000) (414,000) (963,000)
Deposits for property
and equipment......... -- (192,000) 122,000 (93,000) --
Cash paid for business
acquisition........... -- -- (4,323,000) -- --
--------- ----------- ----------- ----------- -----------
Net cash used for
investing
activities......... (332,000) (826,000) (6,782,000) (507,000) (963,000)
--------- ----------- ----------- ----------- -----------
Cash flows from
financing activities:
Cash overdraft, net.... (155,000) 272,000 891,000 (332,000) (42,000)
Line of credit, net.... 768,000 801,000 (1,316,000) (1,735,000) 3,410,000
Note payable
repayments............ (122,000) (122,000) -- -- --
Borrowings on debt..... -- -- 4,000,000 -- --
Repayments of debt..... -- -- (71,000) -- (740,000)
Proceeds from sale of
common stock.......... -- -- -- -- 14,000
Proceeds from sale of
preferred stock, net
of issuance costs..... -- -- 9,900,000 9,900,000 --
Stockholder notes
receivable............ -- -- (5,000,000) (5,000,000) --
Deferred IPO Costs..... -- -- -- -- (403,000)
--------- ----------- ----------- ----------- -----------
Net cash provided by
financing
activities......... 491,000 951,000 8,404,000 2,833,000 2,239,000
--------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and
equivalents............ (21,000) (68,000) 52,000 3,223,000 105,000
Cash and equivalents,
beginning of period.... 93,000 72,000 4,000 4,000 56,000
--------- ----------- ----------- ----------- -----------
Cash and equivalents,
end of period.......... $ 72,000 $ 4,000 $ 56,000 $ 3,227,000 $ 161,000
========= =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND SIX MONTHS ENDED JUNE 30,
1996 AND 1997
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business--Hall, Kinion & Associates, Inc. ("the Company") is an information
technology staffing company specializing in placing high technology personnel
on both a contract and permanent basis. In April 1994, The Stellar Group, Inc.
and Kinion Hall, companies under common ownership, were merged into the
Company in a transaction treated similarly to a pooling-of-interests. The
accompanying financial statements include the results of the combined
companies from January 1, 1994. In December 1996, the Company acquired certain
assets of TeamAlliance Technology Partners, L.P. (Note 2).
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Certain Significant Risks and Uncertainties--The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Such management
estimates include the allowance for doubtful accounts receivable and certain
accruals. Actual results could differ from those estimates.
The Company operates in a dynamic industry, and accordingly, can be affected
by a variety of factors. For example, management of the Company believes that
changes in any of the following areas could have a negative effect on the
Company in terms of its future financial position and results of operations:
ability to obtain additional financing, regulatory changes, uncertainty
relating to the performance of the U.S. economy, competition, demand for the
Company's services, litigation or other claims against the Company, and the
hiring, training and retention of key employees.
The Company's financial instruments that are exposed to credit risk are
primarily cash and equivalents and accounts receivable. The Company places its
cash with what it believes are high credit quality financial institutions. In
granting credit, the Company routinely evaluates the financial strength of its
customers.
Cash and Equivalents--The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents. Cash
equivalents, consisting primarily of money market funds and bank accounts, are
stated at cost which approximates fair value.
Property and Equipment--Property and equipment are stated at cost and
depreciated on a straight-line basis over the estimated useful lives of the
assets, generally three to twenty-five years. Leasehold improvements are
amortized over the shorter of the estimated life of the asset or the lease
term.
Goodwill--Goodwill representing the cost in excess of the fair value of net
assets acquired related to the acquisition of TeamAlliance (Note 2) is being
amortized on a straight-line basis over a thirty-year period. Accumulated
amortization equaled $25,000 at December 31, 1996. The Company calculates the
recoverability of goodwill on a quarterly basis based upon estimated
undiscounted future cash flows.
Revenue Recognition--Revenue from contract placements is recognized as
services are performed. Revenue from permanent placements is recognized upon
commencement of employment.
Other Operating Expenses--Other operating expenses include certain non-
recurring charges including litigation settlement and related costs and
severance costs.
F-7
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994, 1995 AND 1996 AND SIX MONTHS ENDED JUNE 30, 1996
AND 1997
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
Income Taxes--The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, which requires an asset and liability approach of accounting for income
taxes. The Company's tax filing year ends on June 30.
Stock-Based Compensation--The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to
Employees.
Net Income Per Share--Net income per share is based on the weighted average
number of common and dilutive common equivalent shares (common stock options
using the treasury stock method) during the periods presented. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83, all stock
issued and options to purchase shares of common stock granted by the Company
at a price less than the initial filing price during the twelve months
preceding the initial public offering date (using the treasury stock method
and an assumed public offering price of $12.00 per share) have been included
in the computation of common and common equivalent shares outstanding for all
periods presented. Pro forma net income per share is not presented for 1996 as
it does not differ from historical net income per share.
Unaudited Interim Financial Information--The unaudited interim financial
information as of June 30, 1997 and for the six months ended June 30, 1996 and
1997 has been prepared on the same basis as the audited financial statements.
In the opinion of management, such unaudited information includes all
adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of this interim information. Operating results for the six
months ended June 30, 1997 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1997.
Unaudited Pro Forma Information--Unaudited pro forma information in the
accompanying consolidated balance sheet reflects the conversion of each of the
outstanding shares of Series A redeemable preferred stock into 1.041667 shares
of common stock at an assumed public offering price of $12.00 per share, and
the related decrease in the number of shares of authorized preferred stock,
upon the closing of the initial public offering (see Notes 7 and 8).
Fiscal Year--The Company's fiscal year ends on the Sunday closest to
December 31. For convenience, the fiscal year-end is referred to herein as
December 31. Fiscal years 1994, 1995 and 1996 all consisted of 52 weeks.
RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128).
The Company is required to adopt SFAS 128 in the fourth quarter of fiscal 1997
and will restate at that time earnings per share (EPS) data for prior periods
to conform with SFAS 128. Earlier application is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income attributable to common stockholders by the
weighted average of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
However, the SEC rules regarding share issuances and option and other rights
granted to acquire shares prior to an initial public offering, as stated
above, are still applicable and such amounts are included in both basic and
diluted EPS.
F-8
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994, 1995 AND 1996 AND SIX MONTHS ENDED JUNE 30, 1996
AND 1997
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
Pro forma amounts for basic and diluted EPS assuming SFAS 128 had been in
effect for the periods presented are as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DEC. 31, ENDED JUNE 30,
-------------------- ---------------
1994 1995 1996 1996 1997
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Basic EPS............................... $ -- $0.09 $0.15 $0.12 $0.06
Diluted EPS............................. $ -- $0.09 $0.15 $0.11 $0.06
</TABLE>
2. ACQUISITION
In December 1996, the Company completed the acquisition of certain assets of
TeamAlliance Technology Partners, L.P. and its related limited liability
companies ("TeamAlliance"), a provider of staffing services to information
technology companies. The acquisition was accounted for as a purchase. The
consolidated financial statements of the Company include the results of
operations of TeamAlliance for the month of December 1996. The total
consideration for this purchase was $9,424,000 including $949,000 of costs
attributable to the acquisition. Terms of the acquisition included a cash
payment of $4,168,000 at the date of acquisition and the issuance of 52,000
shares of Company common stock valued at $260,000. In addition, the Company
has agreed to pay the sellers an aggregate of $4,200,000 in three future
annual installments as follows: October 31, 1997--$1,250,000; October 31,
1998--$1,250,000; and October 31, 1999--$1,700,000. In addition, payments for
the limited liability companies are being made in twelve monthly installments
aggregating $502,000 and are included in accrued liabilities.
Had the acquisition of TeamAlliance been completed at the beginning of 1996,
the Company's pro forma revenues, net income and earnings per share for 1996
would have been approximately $65,091,000, $475,000, and $0.05. Had the
acquisition of TeamAlliance been completed at the beginning of 1995, the
Company's pro forma revenues, net loss and loss per share for 1995 would have
been approximately $39,574,000, $(95,000), and $(0.01). Pro forma adjustments
reflect the elimination of TeamAlliance revenues for offices not acquired by
the Company, the interest on the cash paid in the acquisition and the
amortization of goodwill as well as the dilution attributable to the shares
issued and stock options granted.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- ----------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Property and equipment.................. $1,206,000 $3,071,000 $3,986,000
Land and building....................... -- 2,047,000 2,047,000
Leasehold improvements.................. 38,000 99,000 137,000
---------- ---------- ----------
1,244,000 5,217,000 6,170,000
Accumulated depreciation and
amortization........................... (410,000) (786,000) (1,211,000)
---------- ---------- ----------
$ 834,000 $4,431,000 $4,959,000
========== ========== ==========
</TABLE>
In October 1996, the Company purchased land, building and furniture in Park
City, Utah to serve as a training facility. The purchase price consisted of
cash of $1,000,000 and a seller-financed mortgage note payable
F-9
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994, 1995 AND 1996 AND SIX MONTHS ENDED JUNE 30, 1996
AND 1997
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
in the amount of $1,147,000. The note bears interest at a fixed rate of 8.75%
per annum and is payable in monthly installments of principal and interest
through 2026.
4. DEBT
The Company has a term loan and revolving line of credit facility enabling
the Company to borrow a stated percentage of eligible accounts receivable up
to a maximum of $12,000,000. Borrowings under this facility in the form of the
term loan bear interest at the bank's prime rate (8.25% at December 31, 1996)
plus one percent, and borrowings under the revolving line of credit bear
interest at the bank's prime rate plus one-half percent. All borrowings under
this facility are collateralized by substantially all of the assets of the
Company. During the period from June 30, 1997 to June 30, 1998, the Company is
required to maintain an interest-bearing deposit at the bank averaging
$3,000,000. If the average balance falls below this amount in any of the four
quarters covered by this period, the Company has agreed to pay the bank $5,000
for such quarter. At December 31, 1996, in connection with the acquisition of
TeamAlliance, the Company borrowed $4,000,000 under the term loan facility and
$418,000 under the revolving line of credit. Commencing in January 1997, the
term loan requires monthly installments of $83,000 plus interest; the
revolving line of credit requires monthly payments of interest only. At June
30, 1997, the Company had $3,828,000 outstanding under the revolving line of
credit.
The facility contains certain covenants requiring the Company to maintain a
minimum level of profitability and net worth and maintain specific ratios of
working capital and current portion of debt to operating cash flow. The
Company was not in compliance with all covenants as of December 31, 1996;
however, such noncompliance at that date has been waived by the bank.
Debt consists of the following at December 31, 1996:
<TABLE>
<S> <C>
Bank term loan, due 1998.................................... $ 4,000,000
Present value of installments due in connection with
acquisition of TeamAlliance (discounted at 8.34%) (Note 2). 3,977,000
Mortgage note payable (Note 3).............................. 1,146,000
-----------
9,123,000
Current portion of debt..................................... (2,385,000)
-----------
Long-term debt.............................................. $ 6,738,000
===========
</TABLE>
Future payment requirements in connection with debt are: 1997, $2,385,000;
1998, $2,037,000; 1999, $2,583,000; 2000, $1,011,000; 2001, $12,000;
thereafter, $1,095,000.
5. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) profit-sharing plan covering substantially all
employees with at least 90 days of continuous service. Employees may
contribute up to 15% of their eligible compensation to a maximum amount as
provided under the Internal Revenue Code. At the discretion of the Board of
Directors, the Company may match employee contributions. For 1994 and 1995,
the Company contributed approximately $9,000 and $37,000, respectively. The
Company has accrued $55,000 for a matching contribution in 1996.
F-10
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994, 1995 AND 1996 AND SIX MONTHS ENDED JUNE 30, 1996
AND 1997
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
6. LEASE COMMITMENTS
The Company leases its office facilities under various noncancellable
operating leases which expire through 2002. Rent expense included in operating
expenses for 1994, 1995 and 1996 was approximately $170,000, $295,000 and
$802,000, respectively. Future minimum payments under all operating leases at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Years Ending December 31,
-------------------------
<S> <C>
1997.............................................................. $1,387,000
1998.............................................................. 1,311,000
1999.............................................................. 1,148,000
2000.............................................................. 784,000
2001.............................................................. 504,000
Thereafter........................................................ 190,000
----------
Total.......................................................... $5,324,000
==========
</TABLE>
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In January 1996, the Company completed the sale of 1,600,000 shares of
Series A redeemable preferred stock for an aggregate price of $10,000,000 less
costs of approximately $100,000 associated with the issuance.
Significant terms of the redeemable preferred stock are as follows:
Conversion--Each share of preferred stock may be converted into common
stock at any time at the option of the preferred stockholder or
automatically upon consummation of a public offering of common stock with
an offering price of at least $12.50 per share and $20,000,000 in the
aggregate. Each preferred share may be converted to one share of common
stock subject to adjustments as defined in the agreement.
Dividends--Noncumulative cash dividends at the rate of $0.56 per share
per annum payable in preference to any declaration or payment of any
dividend on common stock if and when declared by the Board of Directors.
Liquidation Preference--In the event of any liquidation, dissolution or
winding up of the Company, the holders of the preferred shares are entitled
to receive, prior and in preference to any distributions to holders of
common stock, an amount per share equal to the greater of:
. $12.50 per preferred share plus any and all declared but unpaid
dividends,
. $6.25 per preferred share plus $1.56 per share for each 12 months
that have passed since January 26, 1996, compounded annually, plus
any and all declared but unpaid dividends, or
. The amount that would be distributable to each share of common stock
assuming the conversion of all such Series A preferred stock on a
one-for-one basis plus any and all declared but unpaid dividends.
Redemption--Beginning on January 26, 2000, the preferred shares may be
redeemed at the liquidation preference amount. The Company may elect to
redeem the preferred stock in three equal annual installments.
F-11
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994, 1995 AND 1996 AND SIX MONTHS ENDED JUNE 30, 1996
AND 1997
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
8. STOCKHOLDERS' EQUITY
CAPITAL STOCK--The Company is authorized to issue 11,600,000 shares of
capital stock consisting of 10,000,000 shares of common stock and 1,600,000
shares of preferred stock.
STOCKHOLDER NOTES RECEIVABLE--On January 30, 1996, the Company loaned to its
two principal common stockholders, an aggregate of $5,000,000 under non-
recourse promissory notes collateralized by a total of 1,600,000 shares of the
Company's common stock. Each promissory note bears interest at 6.91% per annum
and principal and interest are due and payable on January 30, 2001 or earlier
in the event, among other things, the Company were sold or merged resulting in
a change in control, the Company were to consummate a public offering of its
common stock, or the respective stockholder voluntarily terminates employment
with the Company. At maturity, or earlier in the event of acceleration, the
two principal common stockholders may tender at least an aggregate of 800,000
shares of Common Stock (the number of shares to be based upon the then fair
market value) as full payment of the principal and interest due on the
promissory notes.
STOCK OPTIONS--The Company's 1996 Stock Option Plan (the Plan), as amended
authorizes the issuance of up to 2,300,000 shares of common stock for the
grant of incentive or nonqualified stock options to key employees,
nonemployees, directors and consultants who provide services to the Company.
Under the Plan, options are generally granted at fair market value at the date
of grant as determined by the Board of Directors. Such options are immediately
exercisable and vest over periods ranging from two to five years and expire up
to ten years from the grant date. Prior to the adoption of the Plan, the
Company was authorized to grant options to purchase 625,000 shares of common
stock. These options become exercisable over periods ranging from three to
five years and expire up to ten years from the grant date. In 1996, the
Company issued 974,000 options outside of the Plan to an employee of which 50%
were vested at year ended December 31, 1996 and 50% will vest ratably over 24
months commencing January 1998 with acceleration clauses. Option activity is
as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Balance, January 1, 1995.......................... -- $ --
Granted (weighted average fair value of $26,000).. 454,000 $ 0.30
Canceled.......................................... (13,000) $ 0.30
---------
Balance, December 31, 1995 (none exercisable)..... 441,000 $ 0.30
Granted (weighted average fair value of
$1,054,000)...................................... 1,828,000 $ 4.07
Canceled.......................................... (63,000) $ 3.00
Exercised......................................... (5,000) $ 1.26
---------
Balance, December 31, 1996........................ 2,201,000 $ 3.35
Granted........................................... 342,000 $10.00
Canceled.......................................... (59,000) $ 4.10
Exercised......................................... (46,000) $ 0.30
---------
Balance, June 30, 1997............................ 2,438,000 $ 4.33
=========
</TABLE>
F-12
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994, 1995 AND 1996 AND SIX MONTHS ENDED JUNE 30, 1996
AND 1997
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
Additional information regarding options outstanding as of December 31, 1996
is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------
OPTIONS EXERCISABLE
WEIGHTED --------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
--------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.30................. 418,000 8.63 $0.30 140,000 $0.30
$1.50................. 94,000 9.35 $1.50 94,000 $1.50
$4.00................. 1,366,000 9.74 $4.00 1,366,000 $4.00
$5.10................. 323,000 9.92 $5.10 323,000 $5.10
--------- ---------
2,201,000 9.54 $3.35 1,923,000 $3.79
========= =========
</TABLE>
At December 31, 1996 and June 30, 1997, 1,068,000 and 785,000 options,
respectively, were available for future grant.
ADDITIONAL STOCK PLAN INFORMATION--As discussed in Note 1, the Company
continues to account for its stock-based awards using the intrinsic value
method in accordance with APB 25, Accounting for Stock Issued to Employees and
its related interpretations. Accordingly, no compensation expense has been
recognized in the financial statements for employee stock arrangements.
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation, (SFAS 123) requires the disclosure of pro forma net income
and earnings per share had the Company adopted the fair value method as of the
beginning of fiscal 1995. Under SFAS 123, the fair value of stock-based awards
to employees is calculated through the use of option pricing models, even
though models were developed to estimate the fair value of freely tradable,
fully transferable options without vesting restrictions, which significantly
differ from the Company's stock option awards. These models also require
subjective assumptions, including future stock price volatility and expected
time to exercise, which affect the calculated values. The Company's
calculations were made using the Black-Scholes option pricing model with the
following weighted average assumptions: expected life, 12 months following
vesting; volatility, zero in 1995 and 1996; risk free interest rates, 6.5% in
1995 and 1996; and no dividends during the expected term. The Company's
calculations are based on a multiple option valuation approach and forfeitures
are recognized as they occur. If the computed fair values of the 1995 and 1996
awards had been amortized to expense over the vesting period of the awards,
pro forma net income and pro forma net income per share would have been
$678,000, $0.09 per share, and $1,087,000, $0.12 per share, in 1995 and 1996,
respectively.
COMMON STOCK WARRANTS--Common stock warrants have been issued in conjunction
with the issuance of the preferred stock in January 1996. At December 31,
1996, the Company had outstanding warrants to purchase 250,000 shares of
common stock at $0.01 per share. In addition, the Company has outstanding
warrants held by the preferred stockholder to purchase up to 242,000 shares of
common stock at $0.01 per share in the event the Company's two principal
stockholders tender less than an aggregate of 800,000 common shares as full
satisfaction of their outstanding notes.
F-13
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994, 1995 AND 1996 AND SIX MONTHS ENDED JUNE 30, 1996
AND 1997
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
9. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
--------- --------- ----------
<S> <C> <C> <C>
Current:
Federal.................................. $ 96,000 $ 494,000 $ 808,000
State.................................... 33,000 148,000 257,000
--------- --------- ----------
129,000 642,000 1,065,000
--------- --------- ----------
Deferred:
Federal.................................. (76,000) (134,000) (41,000)
State.................................... (27,000) (39,000) (20,000)
--------- --------- ----------
(103,000) (173,000) (61,000)
--------- --------- ----------
$ 26,000 $ 469,000 $1,004,000
========= ========= ==========
</TABLE>
The Company's effective tax rate differs from the federal statutory rate as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Income tax expense at statutory rate....................... 34.0% 34.0% 34.0%
State income taxes, net of federal benefit................. 6.8 6.3 6.5
Other items, net........................................... 3.3 0.4 2.0
----- ----- -----
44.1% 40.7% 42.5%
===== ===== =====
</TABLE>
The components of net deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets--
Accruals and reserves recognized in different periods... $350,000 $364,000
Deferred tax liabilities--accrual to cash conversion..... (71,000) (24,000)
-------- --------
Net deferred tax assets.................................. $279,000 $340,000
======== ========
</TABLE>
10. CONTINGENCIES
The Company is party to various legal actions in the normal course of
business. Although the ultimate outcome of these matters is not presently
determinable, management believes that the resolution of all such pending
matters will not have a material adverse effect on the Company's financial
position or results of operations.
F-14
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994, 1995 AND 1996 AND SIX MONTHS ENDED JUNE 30, 1996
AND 1997
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
1997 IS UNAUDITED)
11. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following provides additional information concerning supplemental
disclosures of cash flow activities:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- -----------------
1994 1995 1996 1996 1997
-------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash paid during the
period for:
Income taxes............ $ 49,000 $577,000 $ 1,956,000 $431,000 $ 86,000
Interest ............... 115,000 117,000 46,000 29,000 345,000
Noncash investing and
financing activities:
Purchase of land,
building and furniture
for note payable....... -- -- 1,147,000 -- --
Exercise of stock
options................ -- -- 6,000 -- --
Common Stock issued..... -- -- -- -- 150,000
Effect of business
acquisition:
Intangible assets and
equipment acquired... -- -- $ 9,424,000 -- --
Installment
obligations issued... -- -- (4,047,000) -- --
Common stock issued... -- -- (260,000) -- --
Accrued expenses in
connection with
acquisition.......... -- -- (794,000) -- --
-----------
Cash paid for
business
acquisition........ $ 4,323,000
===========
</TABLE>
F-15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TeamAlliance Technology Partners, L.P.:
We have audited the accompanying consolidated balance sheets of TeamAlliance
Technology Partners, L.P. and Subsidiaries as of December 31, 1994 and 1995,
and the related statements of income, changes in partners' capital and cash
flows for the period from inception (May 1, 1994) through December 31, 1994
and for the year ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TeamAlliance Technology
Partners, L.P. and Subsidiaries as of December 31, 1994 and 1995, and the
results of its operations and its cash flows for the period from inception
(May 1, 1994) through December 31, 1994 and for the year ended December 31,
1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
October 30, 1996 (except with
respect to Note 10, as to which the
date is December 4, 1996)
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
To TeamAlliance Technology Partners, L.P. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of TeamAlliance
Technology Partners, L.P. and Subsidiaries as of December 1, 1996, and the
related consolidated statements of income, changes in partners' capital and
cash flows for the period from January 1, 1996 through December 1, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of TeamAlliance Technology
Partners, L.P. and Subsidiaries, as of December 1, 1996 and the results of
their operations and their cash flows for the above-stated period then ended
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
May 20, 1997
F-17
<PAGE>
TEAMALLIANCE TECHNOLOGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
DECEMBER 1,
1994 1995 1996
-------- ---------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash.......................................... $ 67,155 $ 86,296 $ 224,822
Accounts receivable, net of allowance for
doubtful accounts of $0, $84,529 and
$165,903, respectively....................... 581,585 3,031,537 2,687,122
Prepaid expenses and other.................... 14,373 134,998 22,900
-------- ---------- ----------
Total current assets..................... 663,113 3,252,831 2,934,844
Fixed assets, net.............................. 18,489 199,326 240,722
Organization costs, net of accumulated amorti-
zation of $1,110 and $12,120 and $103,938, re-
spectively.................................... 10,491 91,788 --
Other assets................................... 9,250 28,130 24,380
-------- ---------- ----------
Total assets............................. $701,343 $3,572,075 $3,199,946
======== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Short term borrowings......................... $ -- $2,227,963 $2,148,958
Accounts payable and accrued expenses......... 528,088 803,891 1,043,885
Related party loans payable and advances...... 18,525 120,000 39,940
Obligation under capital lease................ -- 95,904 --
-------- ---------- ----------
Total current liabilities................ 546,613 3,247,758 3,232,783
Related party loans payable and advances--long
term.......................................... -- 29,941 --
Partners' Capital:
General Partner............................... 77,365 128,354 (16,418)
Limited Partner............................... 77,365 166,022 (16,419)
-------- ---------- ----------
Total partners' capital.................. 154,730 294,376 (32,837)
-------- ---------- ----------
Total liabilities and partners' capital.. $701,343 $3,572,075 $3,199,946
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
TEAMALLIANCE TECHNOLOGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION PERIOD FROM
(MAY 1, 1994) JANUARY 1, 1996
THROUGH YEAR ENDED THROUGH
DECEMBER 31, DECEMBER DECEMBER 1,
1994 31, 1995 1996
------------- ----------- ---------------
<S> <C> <C> <C>
Revenues............................. $1,674,949 $14,191,153 $19,198,731
Expenses:
Direct costs of revenues............ 969,560 9,090,526 13,775,073
Selling, general and administrative
expenses........................... 473,857 3,426,972 4,346,927
Legal fees related to sale (see Note
9)................................. -- -- 151,657
Interest and financing costs........ 248 311,786 505,983
Write-off of organization costs..... -- 54,900 91,788
---------- ----------- -----------
Income before provision for income
taxes............................... 231,284 1,306,969 327,303
Provision for income taxes........... 10,554 27,323 22,830
---------- ----------- -----------
Net income........................... $ 220,730 $ 1,279,646 $ 304,473
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
TEAMALLIANCE TECHNOLOGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNER TOTAL
-------- -------- ----------
<S> <C> <C> <C>
Initial Contribution, May 1, 1994.............. $ 15,000 $ 15,000 $ 30,000
Net Income..................................... 110,365 110,365 220,730
Distributions.................................. (48,000) (48,000) (96,000)
-------- -------- ----------
Balances, December 31, 1994................. 77,365 77,365 154,730
Net Income..................................... 540,989 738,657 1,279,646
Distributions.................................. (490,000) (650,000) (1,140,000)
-------- -------- ----------
Balances, December 31, 1995................. 128,354 166,022 294,376
Net Income .................................... 213,914 90,559 304,473
Distributions ................................. (358,686) (273,000) (631,686)
-------- -------- ----------
Balances, December 1, 1996 ................. $(16,418) $(16,419) $ (32,837)
======== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
TEAMALLIANCE TECHNOLOGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION (MAY 1, JANUARY 1, 1996
1994) THROUGH YEAR ENDED THROUGH
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 1, 1996
----------------- ----------------- ----------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net Income............... $ 220,730 $ 1,279,646 $ 304,473
Adjustments to reconcile
net income to net cash
provided (used) by
operating activities:
Depreciation and
amortization........... 6,117 44,396 82,759
Write-off of
organization costs..... -- 54,900 91,788
(Increase) decrease in
accounts receivable.... (581,585) (2,449,952) 344,415
(Increase) decrease in
prepaid expenses and
other.................. (14,373) (120,625) 112,098
(Increase) decrease in
other assets........... (9,250) (18,880) 3,750
Increase in accounts
payable and accrued
expenses............... 528,088 275,803 239,994
--------- ----------- ---------
Net cash provided
(used) by operating
activities........... 149,727 (934,712) 1,179,277
--------- ----------- ---------
Cash flows from investing
activities:
Acquisition of fixed
assets.................. (23,496) (129,673) (124,155)
Increase in organization
costs................... (11,601) (153,305) --
--------- ----------- ---------
Net cash used by in-
vesting activities... (35,097) (282,978) (124,155)
--------- ----------- ---------
Cash flows from financing
activities:
Increase (decrease) in
short term borrowings,
net..................... -- 2,227,963 (79,005)
Proceeds from related
party loans and
advances................ 18,525 256,079 --
Repayments of related
party loans and
advances................ -- (70,595) (110,001)
Repayments of obligation
under capital leases.... -- (36,616) (95,904)
Initial contribution..... 30,000 -- --
Distributions to
partners................ (96,000) (1,140,000) (631,686)
--------- ----------- ---------
Net cash provided
(used) by financing
activities........... (47,475) 1,236,831 (916,596)
--------- ----------- ---------
Increase in cash.......... 67,155 19,141 138,526
Cash--Beginning of period. -- 67,155 86,296
--------- ----------- ---------
Cash--End of period....... $ 67,155 $ 86,296 $ 224,822
========= =========== =========
SUPPLEMENTAL INFORMATION
Interest and other
financing costs paid..... $ -- $ 309,949 $ 491,204
Income taxes paid......... -- 7,712 22,830
Non-cash investing and
financing activities
Capital lease
obligations............. -- 132,521 --
Payment of debt with
fixed assets............ -- 54,069 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
TEAMALLIANCE TECHNOLOGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM INCEPTION
(MAY 1, 1994)
THROUGH DECEMBER 31, 1994, FOR THE YEAR ENDED DECEMBER 31, 1995 AND FOR THE
PERIOD FROM JANUARY 1, 1996 THROUGH DECEMBER 1, 1996
1. ORGANIZATION AND NATURE OF BUSINESS
TeamAlliance Technology Partners, L.P. (the "Partnership") was formed on May
1, 1994 by TeamAlliance Technology Partners, Inc. (the "General Partner") and
Team Visions, Inc. (the "Limited Partner") for the purpose of providing
temporary and permanent personnel in the high technology industries.
TeamAlliance Technology Partners, L.P. and its general partner formed numerous
limited liability companies throughout the United States in which their
respective ownership interest is 99% and 1% and whose period of duration is
thirty years. (The Partnership and limited liability companies collectively
are herein referred to as the "Company.")
Pursuant to the terms of the Partnership Agreement between TeamAlliance
Technology Partners, Inc. and Team Visions, Inc., the Partnership shall
continue until December 31, 2006 unless terminated prior to that date.
The consolidated financial statements included herein do not reflect a
reduction to income nor a liability to the minority owner (TeamAlliance
Technology Partners, Inc.) of the limited liability companies as such amount
has been deemed to be immaterial.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation--The consolidated financial statements include
the accounts of TeamAlliance Technology Partners, L.P. and its majority owned
and controlled limited liability companies (subsidiaries). All material
intercompany transactions have been eliminated (see Note 1 relating to
minority interest).
Revenue recognition--Revenue relating to the placement of temporary
personnel is recognized upon performance of the service. Revenue relating to
the placement of permanent personnel is recognized when the individual
commences employment.
Fixed Assets--Fixed assets are recorded at cost and primarily consists of
computer equipment. Depreciation is provided for under the double declining
method over an expected useful life of 5 years. Assets under the capital lease
obligation are capitalized and depreciated using the straight line method over
3 years.
Fixed Assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 1,
1994 1995 1996
------------ ------------ -----------
<S> <C> <C> <C>
Computer Equipment.................... $23,496 $225,120 $353,893
Furniture & Fixtures.................. -- 6,500 6,500
------- -------- --------
23,496 231,620 360,393
Less: Accumulated depreciation......... (5,007) (32,294) (119,671)
------- -------- --------
$18,489 $199,326 $240,722
======= ======== ========
</TABLE>
The gross and net book value of assets under the capital lease obligation
was $132,521 and $126,999 at December 31, 1995 and nil at December 1, 1996.
Organization costs--Organization costs are amortized under the straight-line
method over a period of five years.
Advertising and promotion expenses--The cost of advertising and promotion is
expensed when incurred.
Software--The cost to develop internally used software is expensed as
incurred.
F-22
<PAGE>
TEAMALLIANCE TECHNOLOGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM INCEPTION
(MAY 1, 1994)
THROUGH DECEMBER 31, 1994, FOR THE YEAR ENDED DECEMBER 31, 1995 AND FOR THE
PERIOD FROM JANUARY 1, 1996 THROUGH DECEMBER 1, 1996--(CONTINUED)
Direct cost of revenues--Direct cost of revenues consist of payroll and the
related benefits costs for the placement of temporary personnel.
Income Taxes--The Partnership and limited liabilities companies are not
taxable entities for federal and state income tax purposes. Accordingly, for
financial reporting purposes, no recognition has been given to income taxes
related to such operations. The tax on company's income is borne by the
individual partners and members through the allocation of taxable income or
loss. Such taxable income or loss may vary substantially from net income or
net loss reported in the consolidated statements of income. Income taxes
reflected in the accompanying financial statements consist predominantly of
unincorporated business taxes. The Company has adopted the cash basis of
accounting for income tax purposes. A deferred tax liability results from
timing differences in the recognition of income and expenses between financial
statement income and taxable income, which was not material.
Concentration of credit risks--The Company operates throughout the United
States, with approximately one half of its revenues generated from companies
in the New York Metropolitan area. The Company grants credit to its customers,
who are principally in the financial services and technology industries.
Use of estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
3. ACCOUNTS RECEIVABLE FINANCING
On March 7, 1995 the Company entered into an agreement to sell, on a
revolving basis, an undivided interest in a designated pool of accounts
receivable relating to its temporary placement business. The factoring charge
(administration fee) amounts to 2% of the receivables sold. In addition,
interest is charged (financing fee) at 0.4% of the total receivables sold
which remain unpaid by the customer for 1 day but less than 31 days plus an
additional 0.5% of the receivables which remain unpaid for 31 days but not
more than 60 days. After 60 days, the Company is obligated to repurchase the
unpaid receivables. The rights, title and interest in receivables sold remain
with the lender until the termination of the agreement. Upon termination of
this agreement, amounts of receivables not yet paid by the Company's customers
are returned to the Company for payment. The amount of accounts receivables
outstanding under this agreement has been reflected as short term borrowings
in the accompanying financial statements. The average amount of borrowings and
average interest rate for the year while this agreement was in effect was
approximately $1,850,000 and 16%, respectively, for 1995 and $3,268,000 and
15%, respectively, for the period from January 1, 1996 through December 1,
1996.
In connection with this agreement, the Company has agreed to maintain a
certain level of positive tangible net worth as defined by the agreement. At
December 31, 1995 the Company was not in compliance with this covenant. In
October 1996, the Company obtained a waiver regarding compliance with this
covenant through December 31, 1996, and amended the covenant, commencing
January 1, 1997, to make it less restrictive and to include a net worth
covenant based upon financial statements prepared in accordance with generally
accepted accounting principles.
4. LOANS AND ADVANCES PAYABLE
The Company is indebted to the limited partner in the amount of
approximately $39,940 relating to borrowings from the partner and from
payments made by the partner on behalf of the Company relating to the purchase
of computer equipment. The loan bears interest at 8% per annum and is due
through January 1, 1997.
F-23
<PAGE>
TEAMALLIANCE TECHNOLOGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM INCEPTION
(MAY 1, 1994)
THROUGH DECEMBER 31, 1994, FOR THE YEAR ENDED DECEMBER 31, 1995 AND FOR THE
PERIOD FROM JANUARY 1, 1996 THROUGH DECEMBER 1, 1996--(CONTINUED)
5. OBLIGATION UNDER CAPITAL LEASE
During 1995 the Company leased certain computer equipment and software under
a capital lease agreement at an interest rate of approximately 15%. The lease
was paid in 1996. The debt was secured by the assets underlying the agreement.
6. COMMITMENTS AND CONTINGENCIES
Operating Leases--The Company leases office space under operating leases and
subleases expiring through January 2001. Future minimal rental payments under
these agreements are as follows:
<TABLE>
<S> <C>
1997................................................................ $139,000
1998................................................................ 139,000
1999................................................................ 139,000
2000................................................................ 139,000
2001................................................................ 12,000
--------
$568,000
========
</TABLE>
Rent expense, net of subrental income of $76,500 in 1995, was approximately
$41,000, $180,000 and $155,000 in 1994, 1995 and 1996, respectively.
Letter of Credit--The Company issued an irrevocable standby letter of credit
in the amount of $420,000, which expired on March 7, 1997 as security of its
liability resulting from the Accounts Receivable Financing (see Note 3). The
letter of credit is guaranteed by an individual who is the sole stockholder of
the limited partner. The Company has agreed to indemnify and hold harmless the
guarantor in connection with his guarantee.
7. RELATED PARTY TRANSACTIONS
The Company leased space to a company affiliated with the limited partner at
the rate of $8,500 per month which commenced in March 1995 and terminated in
February 1996. In addition, companies affiliated with the limited partner
conduct educational seminars for the training and support of Company
employees, which amounted to approximately $78,000, $173,000 and $7,000 in
1994, 1995 and 1996, respectively and has been reflected in selling, general
and administrative expenses in the accompanying statements of income.
Companies either wholly or partially owned by stockholders of the general
partner performed services in connection with the placement of temporary
personnel. These amounts totaled approximately $37,000, $69,000 and nil in
1994, 1995 and 1996, respectively.
The Company incurred approximately $40,000 in 1995 and $42,000 in 1996 of
legal fees relating to the general partner. These amounts were treated as
distributions to the general partner.
F-24
<PAGE>
TEAMALLIANCE TECHNOLOGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM INCEPTION
(MAY 1, 1994)
THROUGH DECEMBER 31, 1994, FOR THE YEAR ENDED DECEMBER 31, 1995 AND FOR THE
PERIOD FROM JANUARY 1, 1996 TO DECEMBER 1, 1996--(CONTINUED)
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- DECEMBER 1,
1994 1995 1996
-------- -------- -----------
<S> <C> <C> <C>
Accrued payroll and benefits................ $402,625 $488,616 $ 411,524
Accrued taxes other than income............. 10,554 30,165 15,818
Accrued commissions......................... 48,466 22,959 60,644
Accrued professional services............... 16,430 105,522 242,837
Sales tax payable........................... 18,902 49,696 55,881
Other....................................... 31,111 106,933 257,181
-------- -------- ----------
$528,088 $803,891 $1,043,885
======== ======== ==========
</TABLE>
9. MAJOR CUSTOMERS
During 1994 one customer accounted for 15% of revenues.
10. SUBSEQUENT EVENT
On November 26, 1996, the Partnership and six of its majority-owned limited
liability companies entered into an Asset Purchase Agreement whereby they sold
to TA Acquisition Corporation, a wholly owned subsidiary of Hall, Kinion and
Associates, Inc. ("Hall Kinion"), the assets and the business of the
Partnership and a majority of its limited liability companies. The
consideration received by the Partnership includes $4,168,000 in cash and
52,000 shares of common stock of Hall Kinion upon closing, $1,250,000 on
October 31, 1997, $1,250,000 on October 31, 1998 and $1,700,000 on October 31,
1999. Payments to be received after closing are conditioned upon the continued
employment of shareholders of the General Partner. Upon completion of this
transaction, the operating activities of the Partnership will be significantly
less than that reflected in the accompanying financial statements.
F-25
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES AND
TEAMALLIANCE TECHNOLOGY PARTNERS, L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
On December 2, 1996, Hall, Kinion & Associates, Inc. (the "Company" or "HK")
acquired certain assets of TeamAlliance Technology Partners, L.P. and
Subsidiaries ("TA") including the assets of related regional limited liability
corporations (the LLC's) of which TA was a majority owner. The following
unaudited pro forma condensed combining financial information reflects this
business combination which has been accounted for under the purchase method of
accounting.
The unaudited pro forma condensed combining financial information should be
read in conjunction with the accompanying notes to the pro forma condensed
combining financial information and in conjunction with the historical
consolidated financial statements and the related notes thereto of the Company
and the historical financial statements and related notes thereto of TA
included herein.
The unaudited pro forma condensed combining statement of income combines the
Company's results of operations for the year ended December 31, 1996 with the
operating results of TA for the comparable periods and have been prepared as
if the merger was completed as of January 1, 1996. The unaudited pro forma
information is presented for illustrative purposes only and is not necessarily
indicative of the operating results that would have occurred had the merger
been consummated at the beginning of the period prescribed, nor is it
necessarily indicative of future operating results.
F-26
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES AND
TEAMALLIANCE TECHNOLOGY PARTNERS, L.P. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------
PRO FORMA PRO FORMA
HK TA ADJUSTMENTS COMBINED
------- ------- ----------- ---------
(A) (B)
<S> <C> <C> <C> <C>
Net revenues......................... $50,571 $19,199 $(4,679)(c) $65,091
Cost of revenues..................... 30,342 13,775 (3,263)(d) 40,854
------- ------- ------- -------
Gross profit......................... 20,229 5,424 (1,416) 24,237
Operating expenses................... 18,233 4,499 (192)(e) 22,540
------- ------- ------- -------
Income from operations............... 1,996 925 (1,224) 1,697
Other income (expense):
Interest income.................... 434 -- -- 434
Interest expense................... (65) (506) (563)(f) (1,134)
Other expenses, net................ -- (92) 14 (g) (78)
------- ------- ------- -------
Total other income (expense),
net............................. 369 (598) (549) (778)
------- ------- ------- -------
Income before income taxes........... 2,365 327 (1,773) 919
Income taxes......................... 1,004 23 (583)(h) 444
------- ------- ------- -------
Net income........................... $ 1,361 $ 304 $(1,190) $ 475
======= ======= ======= =======
Net income per share:
Primary............................ $ 0.15 $ 0.05
======= =======
Fully diluted...................... $ 0.15 $ 0.05
======= =======
Shares used in per share computation:
Primary............................ 9,351 9,351
======= =======
Fully diluted...................... 9,371 9,371
======= =======
</TABLE>
See notes to unaudited pro forma condensed combining statement of income.
F-27
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(a) The amounts for HK are derived from audited financial statements and
include the activity of TA from December 2, 1996 (date of acquisition).
(b) The amounts for TA are derived from audited financial statements and
include activity from January 1, 1996 through December 1, 1996.
(c) Elimination of revenues related to the regional LLC's that were not
acquired by HK on December 2, 1996.
(d) Elimination of cost of revenues related to the regional LLC's that were
not acquired by HK on December 2, 1996.
(e) Adjustments to operating expenses:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Expenses associated with regional LLC's not acquired......... $(721,000)
Compensation and bonuses of former TA General Partners in
lieu of distributions....................................... 424,000
Amortization of acquired goodwill, over 30 years............. 256,000
Legal fees associated with purchase of TA.................... (151,000)
---------
$(192,000)
=========
</TABLE>
(f) Additional interest expense associated with the use of cash or
additional borrowings for the purchase of TA.
(g) The elimination of other expenses related to the regional LLC's that
were not acquired by HK on December 2, 1996.
(h) Additional corporate income taxes at a rate of 48% net of state tax
deductions, as TA was a partnership taxed at the individual partner's
level prior to acquisition, netted with tax benefits realized from
amortization of acquired goodwill.
F-28
<PAGE>
[PHOTOGRAPH OF GLOBE]
SAN JOSE
AUSTIN
CHICAGO
DENVER
HOUSTON
LONDON
NEW YORK
ORLANDO
PHOENIX
PORTLAND
RALEIGH
SALT LAKE CITY
SEATTLE
TAMPA
HALL KINION:
Hall Kinion is a leading provider of IT Professionals for the next generation of
technology with offices in 14 major technology centers located throughout the
United States and London. Our practice groups provide services in specialized
areas of technical expertise.
CONTRACT SERVICES
Our team of account managers and technical recruiting agents focuses on the
specialized needs of our customers to better ensure that only the most qualified
personnel are matched to contract positions.
CAD
MIS
INTERNET
NET
QA
UNIX
WINDOWS
WRITERS
RECRUITING SERVICES
Our network of specialized IT professionals and knowledge of the industry enable
us to more quickly and efficiently place direct hires for our clients.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with the
Offering other than those contained in this Prospectus and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company, any of the Selling Stockholders or any of the
Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of any offer to buy the securities offered hereby to any person
or by anyone in any jurisdiction in which it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to the date
hereof.
-------------------
TABLE OF CONTENTS
-------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
The Company............................................................... 12
Use of Proceeds........................................................... 13
Dividend Policy........................................................... 13
Capitalization............................................................ 14
Dilution.................................................................. 15
Selected Consolidated and Pro Forma Consolidated Financial Data........... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 17
Business.................................................................. 24
Management................................................................ 35
Certain Transactions...................................................... 43
Principal and Selling Stockholders........................................ 45
Description of Capital Stock.............................................. 47
Shares Eligible for Future Sale........................................... 50
Underwriting.............................................................. 52
Legal Matters............................................................. 53
Experts................................................................... 54
Additional Information.................................................... 54
Index to Consolidated Financial Statements................................ F-1
</TABLE>
Until , 19 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,515,000 SHARES
[LOGO OF HALL KINION]
COMMON STOCK
----------------
PROSPECTUS
----------------
Montgomery Securities
Robert W. Baird & Co.
Incorporated
The Robinson-Humphrey Company, Inc.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration fee............................................... $ 11,394
NASD fee........................................................... 5,260
Nasdaq National Market listing fee................................. 1,000
Printing and engraving expenses.................................... 155,000
Legal fees and expenses............................................ 350,000
Accounting fees and expenses....................................... 290,000
Blue sky fees and expenses......................................... 15,000
Transfer agent fees................................................ 10,000
Miscellaneous fees and expenses.................................... 62,346
--------
Total............................................................ $900,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article VII, Section 6, of the Registrant's
Bylaws provides for mandatory indemnification of its directors and officers
and permissible indemnification of employees and other agents to the maximum
extent permitted by the Delaware General Corporation Law. The Registrant's
Certificate of Incorporation provides that, pursuant to Delaware law, its
directors shall not be liable for monetary damages for breach of the
directors' fiduciary duty as directors to the Company and its stockholders.
This provision in the Certificate of Incorporation does not eliminate the
directors' fiduciary duty, and in appropriate circumstances equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Company for acts
or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for actions leading to improper personal benefit to
the director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. The Registrant intends
to enter into Indemnification Agreements with its officers and directors, a
form of which is attached as Exhibit 10.1 hereto and incorporated herein by
reference. The Indemnification Agreements provide the Registrant's officers
and directors with further indemnification to the maximum extent permitted by
the Delaware General Corporation Law. Reference is made to Section 8 of the
Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying officers
and directors of the Registrant against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions by the Registrant during the last
three years preceding the date hereof involving sales of the Registrant's
securities that were not registered under the Securities Act.
1. On January 30, 1996, the Registrant issued and sold 1,600,000 shares
of its Series A Preferred Stock to a group of three investors for aggregate
cash consideration of $10,000,000.00.
II-1
<PAGE>
2. On January 30, 1996, the Registrant issued and sold warrants to
purchase an aggregate of 250,000 shares of its Common Stock at an exercise
price of $0.01 per share to the same group of three investors referenced in
1 above. No cash consideration was paid for these warrants.
3. On January 30, 1996, the Registrant issued and sold warrants to
purchase an aggregate of 242,215 shares of its Common Stock at an exercise
price of $0.01 per share to the same group of three investors referenced in
1 and 2 above. The consideration paid for these warrants was $30.00.
4. On December 2, 1996, in connection with the TeamAlliance Acquisition,
the Registrant issued 52,000 shares of its Common Stock to TeamAlliance
Technology Partners, L.P. and Subsidiaries as part of the consideration
paid by the Registrant for certain assets purchased.
5. On June 6, 1997, the Registrant issued an aggregate of 15,000 shares
of its Common Stock to Richard E. Swanson and Camerlengo & Johnson pursuant
to the terms of a settlement agreement.
6. The Registrant has issued and sold 51,088 shares (assuming no exercise
of stock options after June 30, 1997) of its Common Stock to employees
pursuant to exercises of options under its 1996 Stock Option Plan.
7. The Registrant has granted options to purchase an aggregate of
1,464,186 shares of Common Stock to employees of the Company under its 1996
Stock Option Plan and 974,000 shares of Common Stock to an employee and
director of the Company outside of 1996 Stock Option Plan.
The issuances described in Items 15(1)-(5) were deemed exempt from
registration under the Securities Act in reliance on Section 4(2) of such Act
as transactions by an issuer not involving any public offering. In addition,
the recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view
to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates issued in such transactions.
All recipients had adequate access, through their relationships with the
Registrant, to information about the Registrant. The issuances described in
Items 15(6)-(7) were deemed exempt from registration under the Securities Act
in reliance upon 701 promulgated under the Securities Act or Section 4(2) of
the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
*2.1 Agreement and Plan of Merger dated , 1997, for the merger of Hall,
Kinion & Associates, Inc., a California corporation into Hall, Kinion
& Associates, Inc., a Delaware corporation (the "Registrant").
+2.2 Asset Purchase Agreement dated November 26, 1996, among the Registrant
and the other parties named therein.
+3.1 Certificate of Incorporation of the Registrant.
*3.2 Form of Restated Certificate of Incorporation to be filed upon the
closing of the Offering made pursuant to this Registration Statement.
+3.3 Bylaws of the Registrant.
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
+4.2 Investors' Rights Agreement, dated January 26, 1996, among the
Registrant, certain stockholders and investors named therein.
+4.3 Right of First Refusal and Co-Sale Agreement, dated January 30, 1996,
among the Registrant, certain stockholders and investors named
therein.
*4.4 Specimen Common Stock certificate.
*5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
+9.1 Dean Call Voting Trust Agreement, dated January 15, 1996, among Brenda
Hall, Virgil Hall and the stockholders of the Registrant named
therein.
+9.2 Kinion Voting Trust Agreement, dated January 17, 1996, among Todd
Kinion and the stockholders of the Registrant named therein.
+9.3 Amended and Restated Voting Trust Agreement, dated October 29, 1996,
among the Registrant, Brenda C. Hall and Todd J. Kinion.
+10.1 Form of Indemnification Agreement to be entered into between the
Registrant and its directors and certain officers.
*10.2 1997 Stock Option Plan and forms of agreements thereunder.
*10.3 Employee Stock Purchase Plan.
+10.4 Pledge Agreement, dated January 30, 1996, among the Registrant, Brenda
Hall and the investors named therein.
+10.5 Pledge Agreement, dated January 30, 1996, among the Registrant, Todd
Kinion and the investors named therein.
+10.6 Secured Promissory Note, dated January 30, 1996, made by Brenda Hall
in favor of the Registrant.
+10.7 Secured Promissory Note, dated January 30, 1996, made by Todd Kinion
in favor of the Registrant.
+10.8 Escrow Agreement, dated January 30, 1996, among the Registrant, Brenda
Hall and the other parties named therein.
+10.9 Escrow Agreement, dated January 30, 1996, among the Registrant, Todd
Kinion and the other parties named therein.
+10.10 Series A Preferred Stock and Warrant Purchase Agreement, dated January
30, 1996, among the Registrant, certain stockholders and investors
named therein.
*10.11 Employment Agreement, dated October 18, 1996, between the Registrant
and Paul Bartlett.
*10.12 Stock Option Agreement, dated October 18, 1996, between the Registrant
and Paul Bartlett.
+10.13 Settlement Agreement and General Release, dated October 29, 1996 among
the Registrant, Brenda Hall, as Voting Trustee of the Voting Trust,
and Todd Kinion.
+10.14 Employment Agreement, dated December 2, 1996, between the Registrant
and Mordecai Levine.
+10.15 Employment Agreement, dated December 2, 1996, between the Registrant
and Richard Harmon.
+10.16 Consulting and Settlement Agreement, dated February 28, 1997, between
the Registrant and Keith Corbin.
10.17 Loan & Security Agreement (Accounts and Inventory), dated April 26,
1995, between the Registrant and Comerica Bank-California (the "Loan &
Security Agreement"); Addendum to Loan & Security Agreement; Second
Addendum to Loan & Security Agreement; Modification to Loan & Security
Agreement, dated December 20, 1995; Second Modification to Loan &
Security Agreement, dated October 21, 1996; Borrower's Authorization
dated October 16, 1996; Borrowers Authorization dated October 21,
1996; and Guaranty, dated April 26, 1995.
+10.18 Assumption and Assignment of Sublease, dated December 2, 1996, between
the Registrant and TeamAlliance Technology Partners, L.P.
+10.19 Standard Sublease, dated March 1, 1997, between the Registrant and
Seagate Technology, Inc.
+10.20 Employment Agreement, dated May 23, 1997, between the Registrant and
Brenda C. Hall.
+10.21 Agreement to Tender Shares dated May 23, 1997, between the Registrant
and Brenda C. Hall.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
+10.22 Agreement to Tender Shares, dated May 23, 1997, between the Registrant
and Todd J. Kinion.
10.23 Promissory Note Secured by Deed of Trust, dated August 5, 1996, made
by Rita S. Hazell and Quentin D. Hazell in favor of the Registrant.
10.24 Settlement Agreement with Mutual Release, dated May, 1997, between
Richard E. Swanson and the Registrant, Brenda C. Hall and Todd J.
Kinion.
11.1 Computation of Earnings Per Share.
+21.1 Subsidiary of the Registrant.
23.1 Consent of Independent Auditors (see page II-7).
23.2 Consent of Independent Public Accountants (see page II-8).
*23.3 Consent of Counsel. Reference is made to Exhibit 5.1.
+24.1 Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- --------
+ Previously filed.
* To be filed by amendment.
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
consolidated financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate
of Incorporation or the Bylaws of the Registrant, the Underwriting Agreement,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
II-4
<PAGE>
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this amendment to registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Cupertino, State of California, on this 10th day of July, 1997.
HALL, KINION & ASSOCIATES, INC.
By /s/ Paul H. Bartlett
___________________________________
Paul H. Bartlett
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<C> <S> <C>
* Chief Executive Officer, July 10, 1997
______________________________________ Chairman of the Board
Brenda C. Hall (Principal Executive
Officer) and Director
/s/ Martin A. Kropelnicki Chief Financial Officer July 10, 1997
______________________________________ and Vice President
Martin A. Kropelnicki (Principal Financial
and Accounting Officer)
/s/ Paul H. Bartlett President and Director July 10, 1997
______________________________________
Paul H. Bartlett
* Director July 10, 1997
______________________________________
Todd J. Kinion
* Director July 10, 1997
______________________________________
Kathleen D. LaPorte
* Director July 10, 1997
______________________________________
Jon H. Rowberry
/s/ Paul H. Bartlett
*By: _________________________________
Paul H. Bartlett
(Attorney-in-Fact)
</TABLE>
II-6
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-28365 of Hall, Kinion & Associates, Inc. on Form S-1 of our report dated
May 16, 1997, appearing in the Prospectus, which is part of this Registration
Statement, and of our report dated May 16, 1997 relating to the financial
statement schedule appearing elsewhere in this Registration Statement.
We also consent to the use in this Amendment No. 1 to Registration Statement
No. 333-28365 of our report on TeamAlliance Technology Partners, L.P. dated
May 20, 1997, appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
San Jose, California
July 10, 1997
II-7
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our firm) included in or made a part of this
Registration Statement (File No. 333-28365).
ARTHUR ANDERSEN LLP
New York, New York
July 10, 1997
II-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Shareholders of
Hall, Kinion & Associates, Inc.:
We have audited the consolidated financial statements of Hall, Kinion &
Associates, Inc. and Subsidiaries as of December 31, 1995 and 1996, and for
each of the three years in the period ended December 31, 1996, and have issued
our report thereon dated May 16, 1997 included elsewhere in this Registration
Statement. Our audits also included the financial statement schedule of Hall,
Kinion & Associates, Inc. listed in Item 16(b)II of this Registration
Statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
San Jose, California
May 16, 1997
II-9
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
----------- ------------ ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
December 31,
1994.................. $ 21 $100 $-- $ -- $121
1995.................. 121 175 -- -- 296
1996.................. 296 145 31 (69) 403
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
*2.1 Agreement and Plan of Merger dated , 1997, for the
merger of Hall, Kinion & Associates, Inc., a California
corporation into Hall, Kinion & Associates, Inc., a
Delaware corporation (the "Registrant").
+2.2 Asset Purchase Agreement dated November 26, 1996, among
the Registrant and the other parties named therein.
+3.1 Certificate of Incorporation of the Registrant.
*3.2 Form of Restated Certificate of Incorporation to be
filed upon the closing of the Offering made pursuant to
this Registration Statement.
+3.3 Bylaws of the Registrant.
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
+4.2 Investors' Rights Agreement, dated January 26, 1996,
among the Registrant, certain stockholders and
investors named therein.
+4.3 Right of First Refusal and Co-Sale Agreement, dated
January 30, 1996, among the Registrant, certain
stockholders and investors named therein.
*4.4 Specimen Common Stock certificate.
*5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin
& Hachigian, LLP.
+9.1 Dean Call Voting Trust Agreement, dated January 15,
1996, among Brenda Hall, Virgil Hall and the
stockholders of the Registrant named therein.
+9.2 Kinion Voting Trust Agreement, dated January 17, 1996,
among Todd Kinion and the stockholders of the
Registrant named therein.
+9.3 Amended and Restated Voting Trust Agreement, dated
October 29, 1996, among the Registrant, Brenda C. Hall
and Todd J. Kinion.
+10.1 Form of Indemnification Agreement to be entered into
between the Registrant and its directors and certain
officers.
*10.2 1997 Stock Option Plan and forms of agreements
thereunder.
*10.3 Employee Stock Purchase Plan.
+10.4 Pledge Agreement, dated January 30, 1996, among the
Registrant, Brenda Hall and the investors named
therein.
+10.5 Pledge Agreement, dated January 30, 1996, among the
Registrant, Todd Kinion and the investors named
therein.
+10.6 Secured Promissory Note, dated January 30, 1996, made
by Brenda Hall in favor of the Registrant.
+10.7 Secured Promissory Note, dated January 30, 1996, made
by Todd Kinion in favor of the Registrant.
+10.8 Escrow Agreement, dated January 30, 1996, among the
Registrant, Brenda Hall and the other parties named
therein.
+10.9 Escrow Agreement, dated January 30, 1996, among the
Registrant, Todd Kinion and the other parties named
therein.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
+10.10 Series A Preferred Stock and Warrant Purchase
Agreement, dated January 30, 1996, among the
Registrant, certain stockholders and investors named
therein.
*10.11 Employment Agreement, dated October 18, 1996, between
the Registrant and Paul Bartlett.
*10.12 Stock Option Agreement, dated October 18, 1996, between
the Registrant and Paul Bartlett.
+10.13 Settlement Agreement and General Release, dated October
29, 1996 among the Registrant, Brenda Hall, as Voting
Trustee of the Voting Trust, and Todd Kinion.
+10.14 Employment Agreement, dated December 2, 1996, between
the Registrant and Mordecai Levine.
+10.15 Employment Agreement, dated December 2, 1996, between
the Registrant and Richard Harmon.
+10.16 Consulting and Settlement Agreement, dated February 28,
1997, between the Registrant and Keith Corbin.
10.17 Loan & Security Agreement (Accounts and Inventory),
dated April 26, 1995, between the Registrant and
Comerica Bank-California (the "Loan & Security
Agreement"); Addendum to Loan & Security Agreement;
Second Addendum to Loan & Security Agreement;
Modification to Loan & Security Agreement, dated
December 20, 1995; Second Modification to Loan &
Security Agreement, dated October 21, 1996; Borrower's
Authorization dated October 16, 1996; Borrowers
Authorization dated October 21, 1996; and Guaranty,
dated April 26, 1995.
+10.18 Assumption and Assignment of Sublease, dated December
2, 1996, between the Registrant and TeamAlliance
Technology Partners, L.P.
+10.19 Standard Sublease, dated March 1, 1997, between the
Registrant and Seagate Technology, Inc.
+10.20 Employment Agreement, dated May 23, 1997, between the
Registrant and Brenda C. Hall.
+10.21 Agreement to Tender Shares dated May 23, 1997, between
the Registrant and Brenda C. Hall.
+10.22 Agreement to Tender Shares, dated May 23, 1997, between
the Registrant and Todd J. Kinion.
10.23 Promissory Note Secured by Deed of Trust, dated August
5, 1996, made by Rita S. Hazell and Quentin D. Hazell
in favor of the Registrant.
10.24 Settlement Agreement with Mutual Release, dated May,
1997, between Richard E. Swanson and the Registrant,
Brenda C. Hall and Todd J. Kinion.
11.1 Computation of Earnings Per Share.
+21.1 Subsidiary of the Registrant.
23.1 Consent of Independent Auditors (see page II-7).
23.2 Consent of Independent Public Accountants (see page II-
8).
*23.3 Consent of Counsel. Reference is made to Exhibit 5.1.
+24.1 Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- --------
+ Previously filed.
* To be filed by amendment.
<PAGE>
EXHIBIT 1.1
2,515,000 SHARES
HALL, KINION & ASSOCIATES, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
DATED _______ __, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1. REPRESENTATIONS AND WARRANTIES.......................................... 2
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................. 2
Compliance with Registration Requirements............................... 2
Offering Materials Furnished to Underwriters............................ 3
Distribution of Offering Material by the Company........................ 3
The Underwriting Agreement.............................................. 3
Authorization of the Common Shares...................................... 3
No Applicable Registration or Other Similar Rights...................... 3
No Material Adverse Change.............................................. 3
Independent Accountants................................................. 4
Preparation of the Financial Statements................................. 4
Incorporation and Good Standing of the Company and its Subsidiaries..... 5
Capitalization and Other Capital Stock Matters.......................... 5
Stock Exchange Listing.................................................. 5
Non-Contravention of Existing Investments; No Further Authorizations
or Approvals Required................................................ 5
No Material Actions or Proceedings...................................... 6
Intellectual Property Rights............................................ 6
All Necessary Permits, etc.............................................. 7
Title to Properties..................................................... 7
Tax Law Compliance...................................................... 7
Company Not an "Investment Company"..................................... 7
Insurance............................................................... 7
No Price Stabilization or Manipulation.................................. 8
Related Party Transactions.............................................. 8
No Unlawful Contributions or Other Payments............................. 8
Company's Accounting System............................................. 8
ERISA Compliance........................................................ 8
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS................ 9
The Underwriting Agreement.............................................. 9
The Custody Agreement and Power of Attorney............................. 9
Title to Common Shares to be Sold; All Authorizations Obtained.......... 9
Delivery of the Common Shares to be Sold................................ 10
Non-Contravention; No Further Authorizations or Approval Required....... 10
No Registration or Other Similar Right.................................. 10
No Further Consents, etc................................................ 10
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Disclosure Made by Such Selling Stockholder in the Prospectus........... 10
No Price Stabilization or Manipulation.................................. 11
C. REPRESENTATIONS AND WARRANTIES OF BRENDA C. HALL........................... 11
Confirmation of Company Representations and Warranties.................. 11
Employee Compensation Arrangements...................................... 11
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES....................... 11
The Firm Common Shares................................................... 11
The First Closing Date................................................... 12
The Optional Common Shares; the Second Closing Date...................... 12
Public Offering of the Common Shares..................................... 13
Payment for the Common Shares............................................ 13
Delivery of the Common Shares............................................ 13
Delivery of Prospectus to the Underwriters............................... 14
SECTION 3. ADDITIONAL COVENANTS................................................... 14
A. COVENANTS OF THE COMPANY................................................... 14
Representative's Review of Proposed Amendments and Supplements........... 14
Securities Act Compliance................................................ 14
Amendments and Supplements to the Prospectus and Other
Securities Act Matters................................................ 15
Copies of any Amendments and Supplements to the Prospectus............... 15
Blue Sky Compliance...................................................... 15
Use of Proceeds.......................................................... 15
Transfer Agent........................................................... 15
Earnings Statement....................................................... 15
Periodic Reporting Obligations........................................... 16
Agreement Not To Offer or Sell Additional Securities..................... 16
Future Reports to the Representatives.................................... 16
B. COVENANTS OF THE SELLING STOCKHOLDERS...................................... 16
Agreement Not to Offer or Sell Additional Securities..................... 17
Delivery of Forms W-8 and W-9............................................ 17
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 4. PAYMENT OF EXPENSES.................................................... 17
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS...................... 18
Accountants' Comfort Letter................................................... 18
Compliance with Registration Requirements; No Stop Order;
No Objection NASD.......................................................... 18
No Material Adverse Change.................................................... 19
Opinion of Counsel for the Company............................................ 19
Opinion of Counsel for the Underwriters....................................... 19
Officers' Certificate......................................................... 19
Bring-down Comfort Letter..................................................... 20
Opinion of Counsel for the Selling Stockholders............................... 20
Selling Stockholders' Certificate............................................. 20
Selling Stockholders' Documents............................................... 20
Lock Up Agreement from Certain Stockholders of the Company
Other Than Selling Stockholders............................................ 20
Additional Documents.......................................................... 21
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES................................ 21
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT........................................ 21
SECTION 8. INDEMNIFICATION........................................................ 22
Indemnification of the Underwriter by the Company............................. 22
Indemnification of the Underwriters by the Selling Stockholders............... 23
Indemnification of the Company, its Directors and Officers.................... 24
Notifications and Other Indemnification Procedures............................ 25
Settlements................................................................... 26
SECTION 9. CONTRIBUTION........................................................... 26
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS.................... 28
SECTION 11. TERMINATION OF THIS AGREEMENT......................................... 29
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY................... 29
</TABLE>
-iii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 13. NOTICES............................................................... 29
SECTION 14. SUCCESSORS............................................................ 30
SECTION 15. PARTIAL UNENFORCEABILITY.............................................. 30
SECTION 16. (a) GOVERNING LAW PROVISIONS........................................... 31
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING STOCKHOLDERS TO
SELL AND DELIVER COMMON SHARES........................................ 31
SECTION 18. GENERAL PROVISIONS.................................................... 31
</TABLE>
-iv-
<PAGE>
EXHIBIT 1.1
UNDERWRITING AGREEMENT
________ __, 1997
MONTGOMERY SECURITIES
ROBERT W. BAIRD & CO. INCORPORATED
THE ROBINSON-HUMPHREY COMPANY, INC.
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. Hall, Kinion & Associates, Inc., a Delaware corporation
(the "Company"), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of 1,666,667 shares of its Common
- ----------
Stock, par value $.001 per share (the "Common Stock"); and the stockholders of
the Company named in Schedule B (collectively, the "Selling Stockholders")
----------
severally propose to sell to the Underwriters an aggregate of 848,333 shares of
Common Stock. The 1,666,667 shares of Common Stock to be sold by the Company
and the 848,333 shares of Common Stock to be sold by the Selling Stockholders
are collectively called the "Firm Common Shares". In addition, Brenda C. Hall,
Todd J. Kinion, Sprout Growth II, L.P., DLJ Capital Corporation and Sprout CEO
Fund, L.P., (collectively, the "Significant Selling Stockholders") have
severally granted to the Underwriters an option to purchase up to an additional
377,250 shares of Common Stock, as provided in Section 2, each Significant
Selling Stockholder selling up to the amount set forth opposite such Significant
Selling Stockholder's name in Schedule B. The additional 377,250 shares to be
----------
sold by the Significant Selling Stockholders pursuant to such option are
collectively called the "Optional Common Shares". The Firm Common Shares and,
if and to the extent such option is exercised, the Optional Common Shares are
collectively called the "Common Shares". Montgomery Securities, Robert W. Baird
& Co. Incorporated and The Robinson-Humphrey Company, Inc. have agreed to act as
representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the offering and sale of the Common
Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-28365), which contains a form of prospectus to be used in connection with
the public offering and sale of the Common Shares. Such registration statement,
as amended, including the financial statements, exhibits and schedules thereto,
in the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively, the "Securities Act"), including any
<PAGE>
information deemed to be a part thereof at the time of effectiveness pursuant to
Rule 430A or Rule 434 under the Securities Act, is called the "Registration
Statement". Any registration statement filed by the Company pursuant to Rule
462(b) under the Securities Act is called the "Rule 462(b) Registration
Statement", and from and after the date and time of filing of the Rule 462(b)
Registration Statement the term "Registration Statement" shall include the Rule
462(b) Registration Statement. Such prospectus, in the form first used by the
Underwriters to confirm sales of the Common Shares, is called the "Prospectus";
provided, however, if the Company has, with the consent of Montgomery
Securities, elected to rely upon Rule 434 under the Securities Act, the term
"Prospectus" shall mean the Company's prospectus subject to completion (each, a
"preliminary prospectus") dated [______], 1997 (such preliminary prospectus is
called the "Rule 434 preliminary prospectus"), together with the applicable term
sheet (the "Term Sheet") prepared and filed by the Company with the Commission
under Rules 434 and 424(b) under the Securities Act and all references in this
Agreement to the date of the Prospectus shall mean the date of the Term Sheet.
All references in this Agreement to the Registration Statement, the Rule 462(b)
Registration Statement, a preliminary prospectus, the Prospectus or the Term
Sheet, or any amendments or supplements to any of the foregoing, shall include
any copy thereof filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval System ("EDGAR").
The Company and each of the Selling Stockholders hereby confirm their
respective agreements with the Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has
complied, to the Commission's satisfaction, with all requests of the
Commission for additional or supplemental information. No stop order
suspending the effectiveness of the Registration Statement or any Rule
462(b) Registration Statement is in effect and no proceedings for such
purpose have been instituted or are pending or, to the best knowledge of
the Company, are contemplated or threatened by the Commission.
Each preliminary prospectus and the Prospectus, when filed, complied
in all material respects with the Securities Act and, if filed by
electronic transmission pursuant to EDGAR (except as may be permitted by
Regulation S-T under the Securities Act), was identical to the copy thereof
delivered to the Underwriters for use in connection with the offer and sale
of the Common Shares. Each of the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendment thereto, at the
time it became effective and at all subsequent times, complied and will
comply in all material respects with the Securities Act and did not and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus, as amended or
supplemented, as of its date and at all subsequent times, did not and will
not
-2-
<PAGE>
contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements
thereto, made in reliance upon and in conformity with information relating
to any Underwriter furnished to the Company in writing by the
Representatives expressly for use therein. There are no contracts or other
documents required to be described in the Prospectus or to be filed as
exhibits to the Registration Statement which have not been described or
filed as required.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to the Representatives three complete manually signed copies of
the Registration Statement and of each consent and certificate of experts
filed as a part thereof, and conformed copies of the Registration Statement
(without exhibits) and preliminary prospectuses and the Prospectus, as
amended or supplemented, in such quantities and at such places as the
Representatives have reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material by the Company. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Common Shares, any offering material in connection with
the offering and sale of the Common Shares other than a preliminary
prospectus, the Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement
of, the Company, enforceable in accordance with its terms, except as rights
to indemnification hereunder may be limited by applicable law and except as
the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
the rights and remedies of creditors or by general equitable principles.
(e) Authorization of the Common Shares. The Common Shares to be
purchased by the Underwriters from the Company have been duly authorized
for issuance and sale pursuant to this Agreement and, when issued and
delivered by the Company pursuant to this Agreement, will be validly
issued, fully paid and nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or
debt securities registered for sale under the Registration Statement or
included in the offering contemplated by this Agreement, other than the
Selling Stockholders with respect to the Common Shares included in the
Registration Statement, except for such rights as have been duly waived.
(g) No Material Adverse Change. Except as otherwise disclosed in the
Prospectus, subsequent to the respective dates as of which information is
given in the Prospectus: (i) there
-3-
<PAGE>
has been no material adverse change, or any development that could
reasonably be expected to result in a material adverse change, in the
condition, financial or otherwise, or in the earnings, business, operations
or prospects, whether or not arising from transactions in the ordinary
course of business, of the Company and its subsidiaries, considered as one
entity (any such change is called a "Material Adverse Change"); (ii) the
Company and its subsidiaries, considered as one entity, have not incurred
any material liability or obligation, indirect, direct or contingent, not
in the ordinary course of business nor entered into any material
transaction or agreement not in the ordinary course of business; and (iii)
there has been no dividend or distribution of any kind declared, paid or
made by the Company or, except for dividends paid to the Company or other
subsidiaries, any of its subsidiaries on any class of capital stock or
repurchase or redemption by the Company or any of its subsidiaries of any
class of capital stock.
(h) Independent Accountants. Deloitte & Touche LLP and Arthur
Anderson & Co. LLP, who have expressed their opinion with respect to the
financial statements (which term as used in this Agreement includes the
related notes thereto) and supporting schedules filed with the Commission
as a part of the Registration Statement and included in the Prospectus,
are, to the Company's knowledge, each independent public or certified
public accountants as required by the Securities Act.
(i) Preparation of the Financial Statements. The financial statements
filed with the Commission as a part of the Registration Statement and
included in the Prospectus present fairly the consolidated financial
position of the Company and its subsidiaries and Team Alliance Technology
Partners, L.P. ("Team Alliance") as of and at the dates indicated and the
results of their operations and cash flows for the periods specified. The
supporting schedules included in the Registration Statement present fairly
the information required to be stated therein. Such financial statements
and supporting schedules have been prepared in conformity with generally
accepted accounting principles as applied in the United States applied on a
consistent basis throughout the periods involved, except as may be
expressly stated in the related notes thereto. No other financial
statements or supporting schedules are required to be included in the
Registration Statement. The financial data set forth in the Prospectus
under the captions "Prospectus Summary--Summary Consolidated and Pro Forma
Consolidated Financial Data", "Selected Consolidated and Pro Forma
Consolidated Financial Data" and "Capitalization" fairly present the
information set forth therein on a basis consistent with that of the
audited financial statements contained in the Registration Statement. The
pro forma consolidated financial statements of the Company and its
subsidiaries and the related notes thereto included under the caption
"Prospectus Summary--Summary Consolidated and Pro Forma Consolidated
Financial Data" and "Selected Consolidated and Pro Forma Consolidated
Financial Data" present fairly the information contained therein, have been
prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements and have been properly presented
on the bases described therein, and the assumptions used in the preparation
thereof are reasonable and the adjustments used therein are appropriate to
give effect to the transactions and circumstances referred to therein.
-4-
<PAGE>
(j) Incorporation and Good Standing of the Company and its
Subsidiaries. Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation and has corporate
power and authority to own, lease and operate its properties and to conduct
its business as described in the Prospectus and, in the case of the
Company, to enter into and perform its obligations under this Agreement.
Each of the Company and each subsidiary is duly qualified as a foreign
corporation to transact business and is in good standing in the State of
California and each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except for such jurisdictions (other than the State of
California) where the failure to so qualify or to be in good standing would
not, individually or in the aggregate, result in a Material Adverse Change.
All of the issued and outstanding capital stock of each subsidiary has been
duly authorized and validly issued, is fully paid and nonassessable and is
owned by the Company directly, free and clear of any security interest,
mortgage, pledge, lien, encumbrance or claim. The Company does not own or
control, directly or indirectly, any corporation, association or other
entity other than the subsidiaries listed in Exhibit 22 to the Registration
Statement.
(k) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options or warrants described in
the Prospectus or upon conversion of outstanding convertible securities
described in the Prospectus). The Common Stock (including the Common
Shares) conforms in all material respects to the description thereof
contained in the Prospectus. All of the issued and outstanding shares of
Common Stock (including the shares of Common Stock owned by Selling
Stockholders) have been duly authorized and validly issued, are fully paid
and nonassessable and have been issued in compliance with federal and state
securities laws. None of the outstanding shares of Common Stock were issued
in violation of any preemptive rights, rights of first refusal or other
similar rights to subscribe for or purchase securities of the Company.
There are no authorized or outstanding options, warrants, preemptive
rights, rights of first refusal or other rights to purchase, or equity or
debt securities convertible into or exchangeable or exercisable for, any
capital stock of the Company or any of its subsidiaries other than those
which conform in all material respects to the description thereof contained
in the Prospectus. The description of the Company's stock option, stock
bonus and other stock plans or arrangements, and the options or other
rights granted thereunder, set forth in the Prospectus accurately and
fairly presents the information required to be shown with respect to such
plans, arrangements, options and rights.
(l) Stock Exchange Listing. The Common Shares have been approved for
inclusion on the Nasdaq National Market, subject only to official notice of
issuance.
(m) Non-Contravention of Existing Investments; No Further
Authorizations or Approvals Required. Neither the Company nor any of its
subsidiaries is in violation of its charter or by-laws or is in default
(or, with the giving of notice or lapse of time, would be in default)
("Default") under any indenture, mortgage, loan or credit agreement, note,
contract, franchise,
-5-
<PAGE>
lease or other instrument to which the Company or any of its subsidiaries
is a party or by which it or any of them may be bound (including, without
limitation, the Company's Revolving Credit Facility with Comerica Bank, as
lender), or to which any of the property or assets of the Company or any
subsidiary is subject (each, an "Existing Instrument"), except for such
Defaults as would not, individually or in the aggregate, result in a
Material Adverse Change. The Company's execution, delivery and performance
of this Agreement and consummation of the transactions contemplated hereby
and by the Prospectus (i) have been duly authorized by all necessary
corporate action and will not result in any violation of the provisions of
the charter or by-laws of the Company or any of its subsidiaries, (ii) will
not conflict with or constitute a breach of, or Default under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries pursuant to,
or require the consent of any other part to, any Existing Instrument,
except for such conflicts, breaches, Defaults, liens, charges or
encumbrances as would not, individually or in the aggregate, result in a
Material Adverse Change and (iii) will not result in any violation of any
law, administrative regulation or administrative or court decree applicable
to the Company or any of its subsidiaries. No consent, approval,
authorization or other order of, or registration or filing with, any court
or other governmental or regulatory authority or agency, is required for
the Company's execution, delivery and performance of this Agreement and
consummation of the transactions contemplated hereby and by the Prospectus,
except such as have been obtained or made by the Company and are in full
force and effect under the Securities Act, applicable state securities or
blue sky laws and from the National Association of Securities Dealers, Inc.
(the "NASD").
(n) No Material Actions or Proceedings. Except as otherwise disclosed
in the Prospectus, there are no legal or governmental actions, suits or
proceedings pending or, to the best of the Company's knowledge, threatened
(i) against or affecting the Company or any of its subsidiaries, (ii) which
has as the subject thereof any officer or director of, or property owned or
leased by, the Company or any of its subsidiaries or (iii) relating to
environmental or discrimination matters, where in any such case (A) there
is a reasonable possibility that such action, suit or proceeding might be
determined adversely to the Company or such subsidiary and (B) any such
action, suit or proceeding, if so determined adversely, would reasonably be
expected to result in a Material Adverse Change or adversely affect the
consummation of the transactions contemplated by this Agreement. No
material labor dispute with the employees of the Company or any of its
subsidiaries exists or, to the best of the Company's knowledge, is
threatened or imminent.
(o) Intellectual Property Rights. Except as otherwise disclosed in the
Prospectus, the Company and its subsidiaries own or possess sufficient
trademarks, trade names, patent rights, copyrights, licenses, approvals,
trade secrets and other similar rights (collectively, "Intellectual
Property Rights") reasonably necessary to conduct their businesses as now
conducted; and the expected expiration of any of such Intellectual Property
Rights would not result in a Material Adverse Change. Neither the Company
nor any of its subsidiaries has received any notice of infringement or
conflict with asserted Intellectual Property Rights of others, which
infringement or conflict, if the subject of an unfavorable decision, would
result in a Material Adverse Change.
-6-
<PAGE>
(p) All Necessary Permits, etc. The Company and each subsidiary
possess such valid and current certificates, authorizations or permits
issued by the appropriate state, federal or foreign regulatory agencies or
bodies necessary to conduct their respective businesses, and neither the
Company nor any subsidiary has received any notice of proceedings relating
to the revocation or modification of, or noncompliance with, any such
certificate, authorization or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, could result in
a Material Adverse Change.
(q) Title to Properties. The Company and each of its subsidiaries has
good and marketable title to all the properties and assets reflected as
owned in the financial statements referred to in Section I (A) (i) above
(or elsewhere in the Prospectus), in each case free and clear of any
security interests, mortgages, liens, encumbrances, equities, claims and
other defects, except such as do not materially and adversely affect the
value of such property and do not materially interfere with the use made or
proposed to be made of such property by the Company or such subsidiary.
The real property, improvements, equipment and personal property held under
lease by the Company or any subsidiary are held under valid and enforceable
leases, with such exceptions as are not material and do not materially
interfere with the use made or proposed to be made of such real property,
improvements, equipment or personal property by the Company or such
subsidiary.
(r) Tax Law Compliance. The Company and its consolidated subsidiaries
have filed all necessary federal, state and foreign income and franchise
tax returns or have properly requested extensions thereof and have paid all
taxes required to be paid by any of them and, if due and payable, any
related or similar assessment, fine or penalty levied against any of them.
The Company has made adequate charges, accruals and reserves in the
applicable financial statements referred to in Section I (A) (i) above in
respect of all federal, state and foreign income and franchise taxes for
all periods as to which the tax liability of the Company or any of its
consolidated subsidiaries has not been finally determined.
(s) Company Not an "Investment Company". The Company has been advised
of the rules and requirements under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Company is not, and after
receipt of payment for the Common Shares will not be, an "investment
company" within the meaning of Investment Company Act and will conduct its
business in a manner so that it will not become subject to the Investment
Company Act.
(t) Insurance. Each of the Company and its subsidiaries are insured
by recognized, financially sound and reputable institutions with policies
in such amounts and with such deductibles and covering such risks as are
generally deemed adequate and customary for their businesses including, but
not limited to, policies covering real and personal property owned or
leased by the Company and its subsidiaries against theft, damage,
destruction, acts of vandalism and earthquakes. The Company has no reason
to believe that it or any of its subsidiaries will not be able (i) to renew
its existing insurance coverage as and when such policies expire or (ii) to
obtain comparable coverage from similar institutions as may be necessary or
appropriate to
-7-
<PAGE>
conduct its business as now conducted and at a cost that would not result
in a Material Adverse Change. Neither of the Company nor any subsidiary has
been denied any insurance coverage which it has sought or for which it has
applied.
(u) No Price Stabilization or Manipulation. The Company has not taken
and will not take, directly or indirectly, any action designed to or that
might be reasonably expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Common Shares.
(v) Related Party Transactions. There are no business relationships
or related-party transactions involving the Company or any subsidiary or
any other person required to be described in the Prospectus which have not
been described as required.
(w) No Unlawful Contributions or Other Payments. Neither the Company
nor any of its subsidiaries nor, to the best of the Company's knowledge,
any employee or agent of the Company or any subsidiary, has made any
contribution or other payment to any official of, or candidate for, any
federal, state or foreign office in violation of any law or of the
character required to be disclosed in the Prospectus.
(x) Company's Accounting System. The Company maintains a system of
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles as applied in the United States and to
maintain accountability for assets; (iii) access to assets is permitted
only in accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with respect
to any differences.
(y) ERISA Compliance. The Company and its subsidiaries and any
"employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or
maintained by the Company, its subsidiaries or their "ERISA Affiliates" (as
defined below) are in compliance in all material respects with ERISA.
"ERISA Affiliate" means, with respect to the Company or a subsidiaries, any
member of any group of organizations described in Sections 414(b),(c),(m)
or (o) of the Internal Revenue Code of 1986, as amended, and the
regulations and published interpretations thereunder (the "Code") of which
the Company or its subsidiaries is a member. No "reportable event" (as
defined under ERISA) has occurred or is reasonably expected to occur with
respect to any "employee benefit plan" established or maintained by the
Company, its subsidiaries or any of their ERISA Affiliates. No "employee
benefit plan" established or maintained by the Company, its subsidiaries or
any of their ERISA Affiliates, if such "employee benefit plan" were
terminated, would have any "amount of unfunded benefit liabilities" (as
defined under ERISA). Neither the Company, its subsidiaries nor any of
their ERISA Affiliates has incurred or reasonably expects to incur any
liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "employee benefit plan" or
-8-
<PAGE>
(ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit
plan" established or maintained by the Company, its subsidiaries or any of
their ERISA affiliates that is intended to be qualified under Section
401(a) of the Code is so qualified and nothing has occurred, whether by
action or failure to act, which would cause the loss of such qualification.
Any certificate signed by an officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
Selling Stockholder severally and not jointly represents, warrants and covenants
to each Underwriter as follows:
(a) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by or on behalf of such Selling
Stockholder and is a valid and binding agreement of such Selling
Stockholder, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as
the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
the rights and remedies of creditors or by general equitable principles.
(b) The Custody Agreement and Power of Attorney. Each of the (i)
Custody Agreement signed by such Selling Stockholder and U.S. Stock
Transfer, as custodian (the "Custodian"), relating to the deposit of the
Common Shares to be sold by such Selling Stockholder (the "Custody
Agreement") and (ii) Power of Attorney appointing certain individuals named
therein as such Selling Stockholder's attorneys-in-fact (each, an
"Attorney-in-Fact") to the extent set forth therein relating to the
transactions contemplated hereby and by the Prospectus (the "Power of
Attorney"), of such Selling Stockholder has been duly authorized, executed
and delivered by such Selling Stockholder and is a valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its
terms, except as rights to indemnification thereunder may be limited by
applicable law and except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights and remedies of creditors or by general
equitable principles.
(c) Title to Common Shares to be Sold; All Authorizations Obtained.
Such Selling Stockholder has, and on the First Closing Date and the Second
Closing Date (as defined below) will have, good and valid title to all of
the Common Shares which may be sold by such Selling Stockholder pursuant to
this Agreement on such date and the legal right and power, and all
authorizations and approvals required by law and under its charter or by-
laws, partnership agreement, trust agreement or other organizational
documents to enter into this Agreement and its Custody Agreement and Power
of Attorney, to sell, transfer and deliver all of the Common Shares which
may be sold by such Selling Stockholder pursuant to this Agreement and to
comply with its other obligations hereunder and thereunder.
-9-
<PAGE>
(d) Delivery of the Common Shares to be Sold. Delivery of the Common
Shares which are sold by such Selling Stockholder pursuant to this
Agreement will pass good and valid title to such Common Shares, free and
clear of any security interest, mortgage, pledge, lien, encumbrance or
other claim.
(e) Non-Contravention; No Further Authorizations or Approval Required.
The execution and delivery by such Selling Stockholder of, and the
performance by such Selling Stockholder of its obligations under, this
Agreement, the Custody Agreement and the Power of Attorney will not
contravene or conflict with, result in a breach of, or constitute a Default
under, or require the consent of any other party to, the charter or by-
laws, partnership agreement, trust agreement or other organizational
documents of such Selling Stockholder or any other agreement or instrument
to which such Selling Stockholder is a party or by which it is bound or
under which it is entitled to any right or benefit, any provision of
applicable law or any judgment, order, decree or regulation applicable to
such Selling Stockholder of any court, regulatory body, administrative
agency, governmental body or arbitrator having jurisdiction over such
Selling Stockholder. No consent, approval, authorization or other order
of, or registration or filing with, any court or other governmental
authority or agency, is required for the consummation by such Selling
Stockholder of the transactions contemplated in this Agreement, except such
as have been obtained or made and are in full force and effect under the
Securities Act, applicable state securities or blue sky laws and from the
NASD.
(f) No Registration or Other Similar Right. Such Selling Stockholder
does not have any registration or other similar rights to have any equity
or debt securities registered for sale by the Company under the
Registration Statement or included in the offering contemplated by this
Agreement, except for such rights as are described in the Prospectus under
"Shares Eligible for Future Sale".
(g) No Further Consents, etc. Except for the (i) exercise by such
Selling Stockholder of certain registration rights pursuant to the Investor
Rights Agreement dated as of January 26, 1996 (which registration rights
have been duly satisfied or waived), (ii) exercise by such Selling
Stockholder of certain co-sale rights pursuant to the Right of First
Refusal and Co-Sale Agreement dated January 30, 1996 (which co-sale rights
have been duly satisfied or waived), (iii) consent of such Selling
Stockholder to the respective number of Common Shares to be sold by all of
the Selling Stockholders pursuant to this Agreement and (iv) waiver by
certain other holders of Common Stock of certain registration rights
pursuant to such Investor Rights Agreement, no consent, approval or waiver
is required under any instrument or agreement to which such Selling
Stockholder is a party or by which it is bound or under which it is
entitled to any right or benefit, in connection with the offering, sale or
purchase by the Underwriters of any of the Common Shares which may be sold
by such Selling Stockholder under this Agreement or the consummation by
such Selling Stockholder of any of the other transactions contemplated
hereby.
(h) Disclosure Made by Such Selling Stockholder in the Prospectus.
All information furnished by or on behalf of such Selling Stockholder in
writing expressly for use in the
-10-
<PAGE>
Registration Statement and Prospectus is, and on the First Closing Date and
the Second Closing Date will be, true, correct, and complete in all
material respects, and does not, and on the First Closing Date and the
Second Closing Date will not, contain any untrue statement of a material
fact or omit to state any material fact necessary to make such information
not misleading. Such Selling Stockholder confirms as accurate the number of
shares of Common Stock set forth opposite such Selling Stockholder's name
in the Prospectus under the caption "Principal and Selling Stockholders"
(both prior to and after giving effect to the sale of the Common Shares).
(i) No Price Stabilization or Manipulation. Such Selling Stockholder
has not taken and will not take, directly or indirectly, any action
designed to or that might be reasonably expected to cause or result in
stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Common Shares.
C. REPRESENTATIONS AND WARRANTIES OF BRENDA C. HALL. Brenda C. Hall
represents, warrants and covenants to each Underwriter, in addition to the
representations, warranties and covenants set forth in Section 1(B) above, as
follows:
(a) Confirmation of Company Representations and Warranties. She is
familiar with the Registration Statement and the Prospectus and to the best
of her knowledge is not aware that the Registration Statement, or any
amendment thereto, or the Prospectus, or any supplement thereto, contains
or will contain, as the case may be, any untrue statement of a material
fact or omits or will omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
however, that she does not make a representation or warranty as to any
information contained in or omitted from the Registration Statement or
Prospectus, or any such amendment or supplement, in reliance upon, and in
conformity with written information furnished to the Company by or on
behalf of any Underwriter through the Representatives, specifically for use
in the preparation thereof.
(b) Employee Compensation Arrangements. There are no oral or written
agreements made prior to the date of this Agreement with current or former
employees, consultants or business partners of the Company or any of its
predecessors to compensate or otherwise grant such persons or parties with
shares of capital stock (or option, warrants or rights therefor) or equity
or profit sharing arrangements that have not either been (i) disclosed the
Prospectus or (ii) satisfied in full prior to the date hereof.
Any certificate signed by or on behalf of any Selling Stockholder and
delivered to the Representatives or to counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Stockholder to each
Underwriter as to the matters covered thereby.
-11-
<PAGE>
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
The Firm Common Shares. Upon the terms herein set forth, (i) the
Company agrees to issue and sell to the several Underwriters an aggregate of
1,666,667 Firm Common Shares and (ii) the Selling Stockholders severally agree
to sell to the several Underwriters an aggregate of 848,333 Firm Common Shares,
each Selling Stockholder selling the number of Firm Common Shares set forth
opposite such Selling Stockholder's name on Schedule B. On the basis of the
----------
representations, warranties and agreements herein contained, and upon the terms
but subject to the conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase from the Company and the Selling
Stockholders the respective number of Firm Common Shares set forth opposite
their names on Schedule A. The purchase price per Firm Common Share to be paid
----------
by the several Underwriters to the Company and the Selling Stockholders shall be
$[___] per share.
The First Closing Date. Delivery of certificates for the Firm Common
Shares to be purchased by the Underwriters and payment therefor shall be made at
the offices of Montgomery Securities, 600 Montgomery Street, San Francisco,
California (or such other place as may be agreed to by the Company and the
Representatives) at 6:00 a.m. San Francisco time, on [_________], 1997 or such
other time and date not later than 10:30 a.m. San Francisco time, on [________],
1997 as the Representatives shall designate by notice to the Company (the time
and date of such closing are called the "First Closing Date").
The Optional Common Shares; the Second Closing Date. In addition, on
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the
Significant Selling Stockholders hereby grant an option to the several
Underwriters to purchase, severally and not jointly, up to an aggregate of
377,250 Optional Common Shares from the Significant Selling Stockholders at the
purchase price per share to be paid by the Underwriters for the Firm Common
Shares. The option granted hereunder is for use by the Underwriters solely in
covering any over-allotments in connection with the sale and distribution of the
Firm Common Shares. The option granted hereunder may be exercised at any time
(but not more than once) upon notice by the Representatives to the Significant
Selling Stockholders (with a copy to the Company), which notice may be given at
any time within 30 days from the date of this Agreement. Such notice shall set
forth (i) the aggregate number of Optional Common Shares as to which the
Underwriters are exercising the option, (ii) the names and denominations in
which the certificates for the Optional Common Shares are to be registered and
(iii) the time, date and place at which such certificates will be delivered
(which time and date may be simultaneous with, but not earlier than, the First
Closing Date; and in such case the term "First Closing Date" shall refer to the
time and date of delivery of certificates for the Firm Common Shares and the
Optional Common Shares). Such time and date of delivery, if subsequent to the
First Closing Date, is called the "Second Closing Date" and shall be determined
by the Representatives and shall not be earlier than three nor later than five
full business days after delivery of such notice of exercise. If any Optional
Common Shares are to be purchased, (a) each Underwriter agrees, severally and
not jointly, to purchase the number of Optional Common Shares (subject to such
adjustments to eliminate fractional shares as the Representatives may determine)
that bears the same proportion to the total number of Optional Common Shares to
be purchased as the number of Firm Common Shares set forth on Schedule A
----------
opposite the name of such Underwriter bears to the total
-12-
<PAGE>
number of Firm Common Shares and (b) each such Significant Selling Stockholder
agrees, severally and not jointly, to sell the total number of Optional Common
Shares (subject to such adjustments to eliminate fractional shares as the
Representatives may determine) that bears the same proportion to the total
number of Optional Common Shares to be sold as the number of Optional Common
Shares set forth in Schedule B opposite the name of such Significant Selling
----------
Stockholder bears to the total number of Optional Common Shares. The
Representatives may cancel the option at any time prior to its expiration by
giving written notice of such cancellation to such Significant Selling
Stockholders (with a copy to the Company).
Public Offering of the Common Shares. The Representatives hereby
advise the Company and the Selling Stockholders that the Underwriters intend to
offer for sale to the public, as described in the Prospectus, their respective
portions of the Common Shares as soon after this Agreement has been executed and
the Registration Statement has been declared effective as the Representatives,
in their sole judgment, have determined is advisable and practicable.
Payment for the Common Shares. Payment for the Common Shares to be
sold by the Company shall be made at the First Closing Date by wire transfer of
immediately available funds to the order of the Company. Payment for the Common
Shares to be sold by the Selling Stockholders shall be made at the First Closing
Date (and, if applicable, at the Second Closing Date) by wire transfer of
immediately available funds to the order of the Custodian.
It is understood that the Representatives have been authorized, for
their own accounts and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Common Shares and any Optional Common Shares the Underwriters have agreed
to purchase. Montgomery Securities, individually and not as the Representative
of the Underwriters, may (but shall not be obligated to) make payment for any
Common Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second Closing
Date, as the case may be, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from any of its obligations under
this Agreement.
Each Selling Stockholder hereby agrees severally and not jointly that
(i) it will pay all stock transfer taxes, stamp duties and other similar taxes,
if any, payable upon the sale or delivery of the Common Shares to be sold by
such Selling Stockholder to the several Underwriters, or otherwise in connection
with the performance of such Selling Stockholder's obligations hereunder and
(ii) the Custodian is authorized to deduct for such payment any such amounts
from the proceeds to such Selling Stockholder hereunder and to hold such amounts
for the account of such Selling Stockholder with the Custodian under the Custody
Agreement.
Delivery of the Common Shares. The Company and the Selling
Stockholders shall deliver, or cause to be delivered, to the Representatives for
the accounts of the several Underwriters certificates for the Firm Common Shares
to be sold by them at the First Closing Date, against the irrevocable release of
a wire transfer of immediately available funds for the amount of the purchase
price therefor. The Significant Selling Stockholders shall also deliver, or
cause to be delivered, to the Representatives for the accounts of the several
Underwriters, certificates for the Optional Common
-13-
<PAGE>
Shares the Underwriters have agreed to purchase from them at the First Closing
Date or the Second Closing Date, as the case may be, against the irrevocable
release of a wire transfer of immediately available funds for the amount of the
purchase price therefor. The certificates for the Common Shares shall be in
definitive form and registered in such names and denominations as the
Representatives shall have requested at least two full business days prior to
the First Closing Date (or the Second Closing Date, as the case may be) and
shall be made available for inspection on the business day preceding the First
Closing Date (or the Second Closing Date, as the case may be) at a location in
New York City as the Representatives may designate. Time shall be of the
essence, and delivery at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriters.
Delivery of Prospectus to the Underwriters. Not later than 12:00 p.m.
on the second business day following the date the Common Shares of released by
the Underwriters for sale to the public, the Company shall delivery or cause to
be delivered copies of the Prospectus in such quantities and at such places as
the Representatives shall request.
SECTION 3. ADDITIONAL COVENANTS OF THE COMPANY
A. COVENANTS OF THE COMPANY. The Company further covenants and
agrees with each Underwriter as follows:
(a) Representative's Review of Proposed Amendments and Supplements.
During such period beginning on the date hereof and ending on the later of
the First Closing Date or such date, as in the opinion of counsel for the
Underwriters, the Prospectus is no longer required by law to be delivered
in connection with sales by an Underwriter or dealer (the "Prospectus
Delivery Period"), prior to amending or supplementing the Registration
Statement (including any registration statement filed under Rule 462(b)
under the Securities Act) or the Prospectus, the Company shall furnish to
the Representatives for review a copy of each such proposed amendment or
supplement, and the Company shall not file any such proposed amendment or
supplement to which the Representatives reasonably object.
(b) Securities Act Compliance. After the date of this Agreement, the
Company shall promptly advise the Representatives in writing (i) of the
receipt of any comments of, or requests for additional or supplemental
information from, the Commission, (ii) of the time and date of any filing
of any post-effective amendment to the Registration Statement or any
amendment or supplement to any preliminary prospectus or the Prospectus,
(iii) of the time and date that any post-effective amendment to the
Registration Statement becomes effective and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto or of any
order preventing or suspending the use of any preliminary prospectus or the
Prospectus, or of any proceedings to remove, suspend or terminate from
listing or quotation the Common Stock from any securities exchange upon
which the it is listed for trading or included or designated for quotation,
or of the threatening or initiation of any proceedings for any of such
purposes. If the Commission shall enter any such stop order at any time,
the Company will use its best efforts to obtain the lifting of such order
-14-
<PAGE>
at the earliest possible moment. Additionally, the Company agrees that it
shall comply with the provisions of Rules 424(b), 430A and 434, as
applicable, under the Securities Act and will use its reasonable efforts to
confirm that any filings made by the Company under such Rule 424(b) were
received in a timely manner by the Commission.
(c) Amendments and Supplements to the Prospectus and Other Securities
Act Matters. If, during the Prospectus Delivery Period, any event shall
occur or condition exist as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in the
light of the circumstances when the Prospectus is delivered to a purchaser,
not misleading, or if in the opinion of the Representatives or counsel for
the Underwriters it is otherwise necessary to amend or supplement the
Prospectus to comply with law, the Company agrees to promptly prepare
(subject to Section 3(A)(a) hereto, file with the Commission and furnish at
its own expense to the Underwriters and to dealers, amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the
Prospectus Delivery Period, as many copies of the Prospectus and any
amendments and supplements thereto as the Representatives may request.
(e) Blue Sky Compliance. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application o
the Blue Sky or state securities laws of those jurisdictions designated by
the Representatives, shall comply with such laws and shall continue such
qualifications, registrations and exemptions in effect during the period in
which a prospectus is required by law to be delivered by an Underwriter or
dealer. The Company shall not be required to qualify as a foreign
corporation or to take any action that would subject it to general service
of process in any such jurisdiction where it is not presently qualified or
where it would be subject to taxation as a foreign corporation. The
Company will advise the Representatives promptly of the suspension of the
qualification or registration of (or any such exemption relating to) the
Common Shares for offering, sale or trading in any jurisdiction or any
initiation or threat of any proceeding for any such purpose, and in the
event of the issuance of any order suspending such qualification,
registration or exemption, the Company shall use its best efforts to obtain
the withdrawal thereof at the earliest possible moment.
(f) Use of Proceeds. The Company shall apply the net proceeds from
the sale of the Common Shares sold by it in the manner described under the
caption "Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Common Stock.
-15-
<PAGE>
(h) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month
period ending [_____, 1998] that satisfies the provisions of Section 11(a)
of the Securities Act.
(j) Periodic Reporting Obligations. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and
the Nasdaq National Market all reports and documents required to be filed
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Additionally, the Company shall file with the Commission all reports on
Form SR as may be required under Rule 463 under the Securities Act.
(k) Agreement Not To Offer or Sell Additional Securities. During the
period of 180 days following the date of the Prospectus, the Company will
not, without the prior written consent of Montgomery Securities (which
consent may be withheld at the sole discretion of Montgomery Securities),
directly or indirectly, sell, offer, contract or grant any option to sell,
pledge, transfer or establish an open "put equivalent position" within the
meaning of Rule 16a-l(h) under the Exchange Act, or otherwise dispose of or
transfer, or announce the offering of, or file any registration statement
under the Securities Act in respect of, any shares of Common Stock, options
or warrants to acquire shares of the Common Stock or securities
exchangeable or exercisable for or convertible into shares of Common Stock
(other than as contemplated by this Agreement with respect to the Common
Shares); provided, however, that the Company may issue (i) shares of its
Common Stock or options to purchase its Common Stock, or Common Stock upon
exercise of options, pursuant to any stock option, stock bonus or other
stock plan or arrangement described in the Prospectus, but only if the
holders of such shares, options, or shares issued upon exercise of such
options, agree in writing not to sell, offer, dispose of or otherwise
transfer any such shares or options during such 180 day period without the
prior written consent of Montgomery Securities (which consent may be
withheld at the sole discretion of the Montgomery Securities) or (ii) up to
$10,000,000 in then fair market value of shares of its capital stock or
options, warrants, rights or other securities exercisable for or
convertible into shares of its capital stock (such securities and shares
issuable upon exercise or conversion thereof being hereafter collectively
referred to as the "Acquisition Securities") in connection with any
acquisition by the Company of all or any part of the business of any other
person or entity, but only if (A) such Acquisition Securities are neither
registered under the Securities Act nor the subject of a registration
statement under the Securities Act filed during such 180 day period without
the prior written consent of Montgomery Securities (which consent may be
withheld at the sole discretion of Montgomery Securities) and (B) the
holders of such Acquisition Securities agree in writing not to sell, offer,
dispose of or otherwise transfer any such Acquisition Securities during
such 180 day period without the prior written consent of Montgomery
Securities (which consent may be withheld at the sole discretion of
Montgomery Securities) unless such acquisition transaction is being
accounted for as a pooling of interests in which case the lock-up agreement
described in this clause (B) will not be required.
(l) Future Reports to the Representatives. During the period of five
years hereafter the Company will furnish to the Representatives at 600
Montgomery Street, San Francisco, CA
-16-
<PAGE>
94111 Attention:[ ] as soon as practicable after the end of each fiscal
year, copies of the Annual Report of the Company containing the balance
sheet of the Company as of the close of such fiscal year and statements of
income, stockholders' equity and cash flows for the year then ended and the
opinion thereon of the Company's independent public or certified public
accountants; (ii) as soon as practicable after the filing thereof, copies
of each proxy statement, Annual Report on Form 10-K, Quarterly Report on
Form 10-Q Current Report on Form 8-K or other report filed by the Company
with the Commission, the NASD or any securities exchange; and (iii) as soon
as available, copies of any report or communication of the Company mailed
generally to holders of its capital stock.
B. COVENANTS OF THE SELLING STOCKHOLDERS. Each Selling Stockholder
further covenants and agrees, severally and not jointly, with each
Underwriter:
(a) Agreement Not to Offer or Sell Additional Securities. Such
Selling Stockholder will not, without the prior written consent of
Montgomery (which consent may be withheld in its sole discretion), directly
or indirectly, sell, offer, contract or grant any option to sell (including
without limitation any short sale), pledge, transfer, establish an open
"put equivalent position" within the meaning of Ride 16a-l(h) under the
Exchange Act, or otherwise dispose of any shares of Common Stock, options
or warrants to acquire shares of Common Stock, or securities exchangeable
or exercisable for or convertible into shares of Common Stock currently or
hereafter owned either of record or beneficially (as defined in Rule 13d-3
under Securities Exchange Act of 1934, as amended) by the undersigned, or
publicly announce the undersigned's intention to do any of the foregoing,
for a period commencing on the date hereof and continuing through the close
of trading on the date 180 days after the date of the Prospectus.
(b) Delivery of Forms W-8 and W-9. To deliver to the Representatives
prior to the First Closing Date a properly completed and executed United
States Treasury Department Form W-8 (if the Selling Stockholder is a non-
United States person) or Form W-9 (if the Selling Stockholder is a United
States Person).
Montgomery Securities, on behalf of the several Underwriters, may, in its
sole discretion, waive in writing the performance by the Company or any Selling
Stockholder of any one or more of the foregoing covenants or extend the time for
their performance.
SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay all costs,
fees and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriters, (iv) all fees and expenses of
the Company's counsel, independent public or certified pubic accountants and
other advisors (except that the Underwriters shall pay one-half of the costs,
fees and expenses incurred in connection with the audit of Team Alliance's 1996
financial statements up to a maximum amount of $50,000), (v) all costs and
expenses incurred in connection with the preparation,
-17-
<PAGE>
printing, filing, shipping and distribution of the Registration Statement
(including financial statements, exhibits, schedules, consents and certificates
of experts), each preliminary prospectus and the Prospectus, and all amendments
and supplements thereto, and this Agreement, (vi) all filing fees, attorneys'
fees and expenses incurred by the Company or the Underwriters in connection with
qualifying or registering (or obtaining exemptions from the qualification or
registration of all or any part of the Common Shares for offer and sale under
the Blue Sky laws, and, if requested by the Representatives, preparing and
printing a "Blue Sky Survey" or memorandum, and any supplements thereto,
advising the Underwriters of such qualifications, registrations and exemptions,
(vii) the filing fees incident to, and the reasonable fees and expenses of
counsel for the Underwriters in connection with, the NASD's review and approval
of the Underwriters' participation in the offering and distribution of the
Common Shares, (viii) the fees and expenses associated with including the Common
Shares on the Nasdaq National Market, and (ix) all other fees, costs and
expenses referred to in Item 14 of Part II of the Registration Statement. Except
as provided in this Section 4, Section 6, Section 8 and Section 9 hereof, the
Underwriters shall pay their own expenses, including the fees and disbursements
of their counsel.
The Selling Stockholders, severally and not jointly, further agree
with each Underwriter to pay (directly or by reimbursement) all fees and
expenses incident to the performance of their obligations under this Agreement
which are not otherwise specifically provided for herein, including but not
limited to (i) fees and expenses of counsel and other advisors for such Selling
Stockholders (ii) fees and expenses of the Custodian and (iii) expenses and
taxes incident to the sale and delivery of the Common Shares to be sold by such
Selling Stockholders to the Underwriters hereunder (which taxes, if any, may be
deducted by the Custodian under the provisions of Section 2 of this Agreement).
This Section 4 shall not affect or modify any separate, valid
agreement relating to the allocation of payment of expenses between the Company,
on the one hand, and the Selling Stockholders, on the other hand.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company and
the Selling Stockholders set forth in Sections 1(A) and 1(B) hereof as of the
date hereof and as of the First Closing Date as though then made and, with
respect to the Optional Common Shares, as of the Second Closing Date as though
then made, to the timely performance by the Selling Stockholders, of their
covenants and other obligations hereunder, and to each of the following
additional conditions:
(a) Accountants' Comfort Letter. On the date hereof, the
Representatives shall have received from Deloitte & Touche LLP, independent
public or certified public accountants for the Company, and from Arthur
Anderson & Co. LLP, independent public or certified public accountants for
Team Alliance, a letter dated the date hereof addressed to the
Underwriters, in form and substance satisfactory to the Representatives,
containing statements and information of the type ordinarily included in
accountant's "comfort letters" to underwriters, delivered according to
Statement of Auditing Standards No. 72 (or any successor bulletin), with
respect
-18-
<PAGE>
to the audited and unaudited financial statements and certain financial
information contained in the Registration Statement and the Prospectus (and
the Representatives shall have received an additional [___] conformed
copies of such accountants' letter for each of the several Underwriters).
(b) Compliance with Registration Requirements; No Stop Order; No
Objection NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with the
Commission (including the information required by Rule 430A under the
Securities Act) in the manner and within the time period required by Rule
424(b) under the Securities Act; or the Company shall have filed a post-
effective amendment to the Registration Statement containing the
information required by such Rule 430A, and such post-effective amendment
shall have become effective; or, if the Company elected to rely upon Rule
434 under the Securities Act and obtained the Representative's consent
thereto, the Company shall have filed a Term Sheet with the Commission in
the manner and within the time period required by such Rule 424(b);
(ii) no stop order suspending the effectiveness of the
Registration Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment to the Registration Statement, shall be in effect
and no proceedings for such purpose shall have been instituted or
threatened by the Commission; and
(iii) the NASD shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.
(c) No Material Adverse Change. For the period from and after the
date of this Agreement and prior to the First Closing Date and, with
respect to the Optional Common Shares, the Second Closing Date, in the
judgment of the Representatives there shall not have occurred any Material
Adverse Change.
(d) Opinion of Counsel for the Company. On each of the First Closing
Date and the Second Closing Date the Representatives shall have received
the favorable opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian LLP, counsel for the Company, dated as of such Closing Date, the
form of which is attached as Exhibit A (and the Representatives shall have
---------
received an additional [___] conformed copies of such counsel's legal
opinion for each of the several Underwriters).
(e) Opinion of Counsel for the Underwriters. On each of the First
Closing Date and the Second Closing Date the Representatives shall have
received the favorable opinion of Wilson Sonsini Goodrich & Rosati, counsel
for the Underwriters, dated as of such Closing Date, with respect to the
matters set forth in paragraphs (i), (viii), (ix), (xi), (xii), and the
next-to-last
-19-
<PAGE>
paragraph of Exhibit A (and the Representatives shall have received an
---------
additional [___] conformed copies of such counsel's legal opinion for each
of the several Underwriters).
(f) Officers' Certificate. On each of the First Closing Date and the
Second Closing Date the Representatives shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer
or President of the Company and the Chief Financial Officer or Chief
Accounting Officer of the Company, dated as of such Closing Date, to the
effect set forth in subsection (b)(ii) of this Section 5, and further to
the effect that:
(i) for the period from and after the date of this Agreement
and prior to such Closing Date, there has not occurred any Material Adverse
Change;
(ii) the representations, warranties and covenants of the
Company set forth in Section I(A) of this Agreement are true and correct
with the same force and effect as though expressly made on and as of such
Closing Date; and
(iii) the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to such Closing Date.
(g) Bring-down Comfort Letter. On each of the First Closing Date and
the Second Closing Date the Representatives shall have received from
Deloitte & Touche LLP, independent public or certified public accountants
for the Company, and from Arthur Anderson & Co. LLP, independent public and
certified accountants for Team Alliance, a letter dated such date, in form
and substance satisfactory to the Representatives, to the effect that they
reaffirm the statements made in the letter furnished by them pursuant to
subsection (a) of this Section 5, except that the specified date referred
to therein for the carrying out of procedures shall be no more than three
business days prior to the First Closing Date or Second Closing Date, as
the case may be (and the Representatives shall have received an additional
[___] conformed copies of such accountants' letter for each of the several
Underwriters).
(h) Opinion of Counsel for the Selling Stockholders. On each of the
First Closing Date and the Second Closing Date the Representatives shall
have received the favorable opinion of [ ], counsel for the Selling
Stockholders, dated as of such Closing Date, the form of which is, attached
as Exhibit B (and the Representatives shall have received an additional
---------
[___] conformed copies of such counsel's legal opinion for each of the
several Underwriters).
(i) Selling Stockholders' Certificate. On each of the First Closing
Date and the Second Closing Date the Representatives shall received a
written certificate executed by the Attorney-in-Fact of each Selling
Stockholder, dated as of such Closing Date, to the effect that:
(i) the representations, warranties and covenants of such
Selling Stockholder set forth in Section I(B) of this Agreement are
true and correct with the same force and effect as though expressly
made by such Selling Stockholder on and as of such Closing Date; and
-20-
<PAGE>
(ii) such Selling Stockholder has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to such Closing Date.
(j) Selling Stockholders' Documents. On the date hereof, the Company
and the Selling Stockholders shall have furnished for review by the
Representatives copies of the Powers of Attorney and Custody Agreements
executed by each of the Selling Stockholders and such further information,
certificates and documents as the Representatives may reasonably request.
(k) Lock Up Agreement from Certain Stockholders of the Company Other
Than Selling Stockholders. On the date hereof, the Company shall have
furnished to the Representatives an agreement in the form of Exhibit C
---------
hereto from each director, officer and each beneficial owner of Common
Stock (as defined and determined according to Rule 13d-3 under the Exchange
Act, except that a one hundred eighty day period shall be used rather than
the sixty day period set forth therein), except that up to 100,000 shares
of Common Stock beneficially owned (as described above) need not be subject
to such agreement.
(l) Additional Documents. On or before each of the First Closing Date
and the Second Closing Date, the Representatives and counsel for the
Underwriters shall have received such information, documents and opinions
as they may reasonably require for the purposes of enabling them to pass
upon the issuance and sale of the Common Shares as contemplated herein, or
in order to evidence the accuracy of any of the representations and
warranties, or the satisfaction of any of the conditions or agreements,
herein contained.
If any condition specified in this Section 5 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company and the Selling Stockholders at any
time on or prior to the First Closing Date and, with respect to the Optional
Common Shares, at any time prior to the Second Closing Date, which termination
shall be without liability on the part of any party to any other party, except
that Section 4, Section 6, Section 8 and Section 9 shall at all times be
effective and shall survive such termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this
Agreement is terminated by the Representatives pursuant to Section 5, Section 7,
Section 10 or Section 11 or Section 17, or if the sale to the Underwriters of
the Common Shares on the First Closing Date is not consummated because of any
refusal, inability or failure on the part of the Company or the Selling
Stockholders to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse the Representatives and the other
Underwriters (or such Underwriters as have terminated this Agreement with
respect to themselves), severally, upon demand for all reasonable out-of-pocket
expenses that shall have been reasonably incurred by the Representatives and the
Underwriters in connection with the proposed purchase and the offering and sale
of the Common Shares, including but not limited to fees and disbursements of
counsel, printing expenses, travel expenses, postage, facsimile and telephone
charges.
-21-
<PAGE>
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.
This Agreement shall not become effective until the later of (i) the
execution of this Agreement by the parties hereto and (ii) notification by the
Commission to the Company and the Representatives of the effectiveness of the
Registration Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated by any
party by notice to each of the other parties hereto, and any such termination
shall be without liability on the part of (a) the Company or the Selling
Stockholders to any Underwriter, except that the Company and the Selling
Stockholders shall be obligated to reimburse the expenses of the Representatives
and the Underwriters pursuant to Sections 4 and 6 hereof, (b) of any Underwriter
to the Company or the Selling Stockholders, or (c) of any party hereto to any
other party except that the provisions of Section 8 and Section 9 shall at all
times be effective and shall survive such termination.
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Underwriters by the Company. The Company
agrees to indemnify and hold harmless each Underwriter, its officers and
employees, and each person, if any, who controls any Underwriter within the
meaning of the Securities Act and the Exchange Act against any loss, claim,
damage, liability or expense, as incurred, to which such Underwriter or
such controlling person may become subject, under the Securities Act, the
Exchange Act or other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company), insofar as
such loss, claim, damage, liability or expense (or actions in respect
thereof as contemplated below) arises out of or is based (i) upon any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement, or any amendment thereto, including any
information deemed to be a part thereof pursuant to Rule 430A or Rule 434
under the Securities Act, or the omission or alleged omission therefrom of
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) upon any untrue statement or
alleged untrue statement of a material fact contained in any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto), or
the omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or (iii) in whole or in part
upon any inaccuracy in the representations and warranties of the Company
contained herein; or (iv) in whole or in part upon any failure of the
Company to perform its obligations hereunder or under law; and to reimburse
each Underwriter and each such controlling person for any and all expenses
(including the fees and disbursements of counsel chosen by Montgomery
Securities) as such expenses are reasonably incurred by such Underwriter or
such controlling person in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage, liability,
expense or action; provided, however, that the foregoing indemnity
agreement shall not apply to any loss, claim, damage, liability or expense
to the extent, but only to the extent, arising out of or based upon any
untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with written information
-22-
<PAGE>
furnished to the Company by the Representatives expressly for use in the
Registration Statement, any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto); and provided, further that with
respect to any preliminary prospectus, the foregoing indemnity agreement
shall not inure to the benefit of any Underwriter from whom the person
asserting any loss, claim, damage, liability or expense purchased Common
Shares, or any person controlling such Underwriter, if copies of the
Prospectus were timely delivered to the Underwriter pursuant to Section 2
and a copy of the Prospectus (as then amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) was not
sent or given by or on behalf of such Underwriter to such person, if
required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Common Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such loss, claim, damage, liability or expense. The
indemnity agreement set forth in this Section 8(a) shall be in addition to
any liabilities that the Company may otherwise have.
(b) Indemnification of the Underwriters by the Selling Stockholders.
Each of the Selling Stockholders (including each of the Significant Selling
Stockholders), severally and not jointly, agrees to indemnify and hold
harmless each Underwriter, its officers and employees, and each person, if
any, who controls any Underwriter within the meaning of the Securities Act
and the Exchange Act against any loss, claim, damage, liability or expense,
as incurred, to which such Underwriter or such controlling person may
become subject, under the Securities Act, the Exchange Act or other federal
or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected
with the written consent of the Company), insofar as such loss, claim,
damage, liability or expense (or actions in respect thereof as contemplated
below) arises out of or is based (i) upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement, or any amendment thereto, including any information deemed to be
a part thereof pursuant to Rule 430A or Rule 434 under the Securities Act,
or the omission or alleged omission therefrom of a material fact required
to be stated therein or necessary to make the statements therein not
misleading, or (ii) upon any untrue statement or alleged untrue statement
of a material fact contained in any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading, or (iii) in whole or in part upon any inaccuracy
in the respective representations and warranties of such Selling
Stockholder contained herein; or (iv) in whole or in part upon any failure
of such Selling Stockholder to perform such Selling Stockholder's
respective obligations hereunder or under law; and to reimburse each
Underwriter and each such controlling person for any and all expenses
(including the fees and disbursements of counsel chosen by Montgomery
Securities) as such expenses are reasonably incurred by such Underwriter or
such controlling person in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage, liability,
expense or action; provided, however, that the foregoing indemnity
agreement shall not apply to any loss, claim, damage, liability or expense
to the extent, but only to the extent, arising out of or based upon any
untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with written information
furnished to the Company by the Representatives expressly for use in the
Registration Statement, any
-23-
<PAGE>
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto); and provided, further that with respect to any preliminary
prospectus, the foregoing indemnity agreement shall not inure to the
benefit of any Underwriter from whom the person asserting any loss, claim,
damage, liability or expense purchased Common Shares, or any person
controlling such Underwriter, if copies of the Prospectus were timely
delivered to the Underwriter pursuant to Section 2 and a copy of the
Prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Underwriter to such person, if required by law so to
have been delivered, at or prior to the written confirmation of the sale of
the Common Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage, liability or expense; and provided, further that each Selling
Stockholder who is not a Significant Selling Stockholder shall be liable
under clauses (i) and (ii) above to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company or such Underwriter by or on behalf of
such Selling Stockholder expressly for use in the Registration Statement
and Prospectus; and provided, further that the liability of each Selling
Stockholder (including each of the Significant Selling Stockholders) under
the foregoing indemnity agreement shall be limited to an amount equal to
the net proceeds received from the sale of the Common Shares sold by such
Selling Stockholder. Each Underwriter and each indemnified party agrees
with each of the Selling Stockholders (including each of the Significant
Selling Stockholders) that any claim for indemnity pursuant to this Section
8(a) shall be first sought to be satisfied by the Company and only if, and
to the extent that, such claim for indemnity has not been satisfied in full
by the Company 120 days after the making of a demand for such
indemnification payment upon the Company, shall then be sought to be
satisfied by Brenda C. Hall and only if, and to the extent that, such claim
for indemnity has not been satisfied in full by, or any settlement with
respect thereto has not been reached with, Brenda C. Hall and/or the
Company 120 days after the making of a demand for such indemnification
payment upon Brenda C. Hall, shall then be sought to be satisfied by the
Selling Stockholders (including Brenda C. Hall). The indemnity agreement
set forth in this Section 8(b) shall be in addition to any liabilities that
the Selling Stockholders may otherwise have.
(c) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold
harmless the Company, each of its directors, each of its officers who
signed the Registration Statement, the Selling Stockholders and each
person, if any, who controls the Company or any Selling Stockholder within
the meaning of the Securities Act or the Exchange Act, against any loss,
claim, damage, liability or expense, as incurred, to which the Company, or
any such director, officer, Selling Stockholder or controlling person may
become subject, under the Securities Act, the Exchange Act, or other
federal or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected
with the written consent of such Underwriter), insofar as such loss, claim,
damage, liability or expense (or actions in respect thereof as contemplated
below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon
-24-
<PAGE>
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in
reliance upon and in conformity with written information furnished to the
Company and the Selling Stockholders by the Representatives expressly for
use therein; and to reimburse the Company, or any such director, officer,
Selling Stockholder or controlling person for any and all expenses
(including the fees and disbursements of counsel chosen by the Company or
the Selling Stockholder, as applicable) as such expenses are reasonably
incurred by the Company, or any such director, officer, Selling Stockholder
or controlling person in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage, liability,
expense or action. Each of the Company and each of the Selling
Stockholders, hereby acknowledges that the only information that the
Underwriters have furnished to the Company and the Selling Stockholders
expressly for use in the Registration Statement, any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto) are the
statements set forth (A) as the last paragraph on the inside front cover
page of the Prospectus concerning stabilization by the Underwriters and (B)
as the first, fourth and fifth paragraphs under the table under the caption
"Underwriting" in the Prospectus; and the Underwriters confirm that such
statements are correct. The indemnity agreement set forth in this Section
8(b) shall be in addition to any liabilities that each Underwriter may
otherwise have.
(d) Notifications and Other Indemnification Procedures. Promptly
after receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement
thereof, but the omission so to notify the indemnifying party will not
relieve the indemnifying party from any liability which the indemnifying
party may have to any indemnified party for contribution or otherwise than
under the indemnity agreement contained in this Section 8 except to the
extent the indemnifying party was prejudiced as a proximate result of such
failure. In case any such action is brought against any indemnified party
and such indemnified party seeks or intends to seek indemnity from an
indemnifying party, the indemnifying party will be entitled to participate
in, and, to the extent that it shall elect, jointly with all other
indemnifying parties similarly notified, by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably
concluded that a conflict may arise between the positions of the
indemnifying party and the indemnified party in conducting the defense of
any such action or that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall
have the right to select separate counsel to assume such legal defenses and
to otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of such indemnifying party's election so to
assume the defense of such action and approval by the indemnified party
-25-
<PAGE>
of counsel, the indemnifying party will not be liable to such indemnified
party under this Section 8 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof
unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for
the expenses of more than one separate counsel (together with local
counsel), approved by the indemnifying party (Montgomery Securities in the
case of Section 8(b) and Section 9), representing the indemnified parties
who are parties to such action) or (ii) the indemnifying party shall not
have employed counsel satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of commencement
of the action, in each of which cases the fees and expenses of counsel,
shall be at the expense of the indemnifying party.
(e) Settlements. No indemnifying party under this Section 8 shall be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent, the indemnifying party agrees to
indemnify the indemnified party against any loss, claim, damage, liability
or expense by reason of such settlement or judgment; provided, that,
neither the Company nor Brenda C. Hall shall give their written consent to
any such settlement unless such settlement includes an unconditional
release of the Significant Selling Stockholders other than Brenda C. Hall
from all liability on claims that are the subject matter of such
proceeding, including, without limitation, claims for indemnity under this
Section 8. Notwithstanding the foregoing sentence, if at any time an
indemnified party shall have requested an indemnifying party to reimburse
the indemnified party for fees and expenses of counsel as contemplated by
Section 8(c) hereof, the indemnifying party agrees that it shall be liable
for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by
such indemnifying party of the aforesaid request and (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance with
such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect
any settlement, compromise or consent to the entry of judgment in any
pending or threatened action, suit or proceeding in respect of which any
indemnified party is or could have been a party and indemnity was or could
have been sought hereunder by such indemnified party, unless such
settlement, compromise or consent includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding; provided, that, neither the Company nor
Brenda C. Hall shall effect any settlement, compromise or consent to the
entry of judgment in any pending or threatened action, suit or proceeding
in respect of which any Significant Selling Stockholder other than Brenda
C. Hall is or could have been a party and indemnity was or could have been
sought hereunder by any Significant Selling Stockholder other than Brenda
C. Hall, unless such settlement, compromise or consent includes an
unconditional release of such Significant Selling Stockholders other than
Brenda C. Hall from all liability on claims that are the subject matter of
such action, suit or proceeding.
-26-
<PAGE>
SECTION 9. CONTRIBUTION.
If the indemnification provided for in Section 8 is for any reason
held to be unavailable to or otherwise insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then each indemnifying party, in lieu of
indemnifying such indemnified party (but only to the extent that such
indemnifying party would have the obligation to indemnify if indemnification had
been available) shall contribute to the aggregate amount paid or payable by such
indemnified party, as incurred, as a result of any losses, claims, damages,
liabilities or expenses referred to therein (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Stockholders, on the one hand, and the Underwriters, on the other hand,
from the offering of the Common Shares pursuant to this Agreement or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Selling Stockholders, on the one hand, and the Underwriters, on the other
hand, in connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholders, on the one hand, and the Underwriters, on the other hand, in
connection with the offering of the Common Shares pursuant to this Agreement
shall be deemed to be in the same respective proportions as the total net
proceeds from the offering of the Common Shares pursuant to this Agreement
(before deducting expenses) received by the Company and the Selling
Stockholders, and the total underwriting discount received by the Underwriters,
in each case as set forth on the front cover page of the Prospectus (or, if Rule
434 under the Securities Act is used, the corresponding location on the Term
Sheet) bear to the aggregate initial public offering price of the Common Shares
as set forth on such cover. The relative fault of the Company and the Selling
Stockholders, on the one hand, and the Underwriters, on the other hand, shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact or any such inaccurate or alleged inaccurate
representation or warranty relates to information supplied by the Company or the
Selling Stockholders, on the one hand, or the Underwriters, on the other hand,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The obligations
of the Selling Stockholders to contribute pursuant to this Section 9 are several
and not joint.
Each Underwriter and each indemnified party agrees with each of the
Selling Stockholders (including each of the Significant Selling Stockholders)
that any claim for contribution pursuant to this Section 9 shall first be sought
to be satisfied by the Company and only if, and to the extent that, such claim
for indemnity has not been satisfied in full by the Company 120 days after the
making of a demand for contribution upon the Company, shall then be sought to be
satisfied by Brenda C. Hall and only if, and to the extent that, such claim for
indemnity has not been satisfied in full by, or any settlement with respect
thereto has not been reached with, Brenda C. Hall and/or the Company 120 days
after the making of a demand for such contribution upon Brenda C. Hall, shall
then be sought to be satisfied by the Selling Stockholders (including Brenda C.
Hall).
-27-
<PAGE>
The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 8(c), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; provided, however,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company, the Selling Stockholders and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 9
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter shall
be required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Common Share underwritten by
it and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9 are several, and not joint, in proportion to their
respective underwriting commitments as set forth opposite their names in
Schedule A. For purposes of this Section 9, each officer and employee of an
- ----------
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company with the meaning of the Securities Act and the Exchange
Act shall have the same rights to contribution as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If,
on the First Closing Date or the Second Closing Date, as the case may be, any
one or more of the several Underwriters shall fail or refuse to purchase Common
Shares that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of the
aggregate number of the Common Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the number
of Firm Common Shares set forth opposite their respective names on Schedule A
----------
bears to the aggregate number of Firm Common Shares set forth opposite the names
of all such non-defaulting Underwriters, or in such other proportions as may be
specified by the Representatives with the consent of the nondefaulting
Underwriters, to purchase the Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the Underwriters shall fail or refuse to purchase Common Shares and the
aggregate number of Common Shares with respect to which such default occurs
exceeds 10% of the aggregate number of Common Shares to be purchased on such
date, and arrangements satisfactory to the Representatives and the Company for
the purchase of such Common Shares are not made within 48
-28-
<PAGE>
hours after such default, this Agreement shall terminate without liability of
any party (except the defaulting Underwriter or Underwriters) to any other party
except that the provisions of Section 4, Section 6, Section 8 and Section 9
shall at all times be effective and shall survive such termination. In any such
case either the Representatives or the Company shall have the right to postpone
the First Closing Date or the Second Closing Date, as the case may be, but in no
event for longer than seven days in order that the required changes, if any, to
the Registration Statement and the Prospectus or any other documents or
arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
10. Any action taken under this Section 10 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First
Closing Date this Agreement may be terminated by the Representatives by notice
given to the Company and the Selling Stockholders at any time (i) trading or
quotation in any of the Company's securities shall have been suspended or
limited by the Commission or by the Nasdaq Stock Market, or trading in
securities generally on either the Nasdaq Stock Market or the New York Stock
Exchange shall have been suspended or limited, or minimum or maximum prices
shall have been generally established on any of such stock exchanges by the
Commission or the NASD; (ii) a general banking moratorium shall have been
declared by any of federal, New York, California or Delaware authorities; (iii)
there shall have occurred any outbreak or escalation of national or
international hostilities or any crisis or calamity, or any change in the United
States or international financial markets, or any substantial change or
development involving a prospective substantial change in United States' or
international political, financial or economic conditions, as in the judgment of
the Representatives is material and adverse and makes it impracticable to market
the Common Shares in the manner and on the terms described in the Prospectus or
to enforce contracts for the sale of securities; (iv) in the judgment of the
Representatives there shall have occurred any Material Adverse Change; or (v)
the Company shall have sustained a loss by strike, fire, flood, earthquake,
accident or other calamity of such character as in the judgment of the
Representatives may interfere materially with the conduct of the business and
operations of the Company regardless of whether or not such loss shall have been
insured. Any termination pursuant to this Section 11 shall be without liability
on the part of (a) the Company or the Selling Stockholders to any Underwriter,
except that the Company and the Selling Stockholders shall be obligated to
reimburse the expenses of the Representatives and the Underwriters pursuant to
Sections 4 and 6 hereof, (b) any Underwriter to the Company or the Selling
Stockholders, or (c) of any party hereto to any other party except that the
provisions of Section 8 and Section 9 shall at all times be effective and shall
survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Stockholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of
-29-
<PAGE>
any Underwriter or the Company or any of its or their partners, officers or
directors or any controlling person, or the Selling Stockholders, as the case
may be, and will survive delivery of and payment for the Common Shares sold
hereunder and any termination of this Agreement.
SECTION 13. NOTICES. All communications hereunder shall be in
writing and shall be mailed, hand delivered or telecopied and confirmed to the
parties hereto as follows:
If to the Representatives:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Richard A. Smith
with a copy to:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
If to the Company:
Hall, Kinion & Associates, Inc.
5300 Stevens Creek Boulevard, Suite 320
San Jose, California 95129
Facsimile: (408) 241-6656
Attention: Paul Bartlett, President
If to the Selling Stockholders:
[Custodian]
[address]
Facsimile: [___]
Attention: [___]
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
-30-
<PAGE>
SECTION 14. SUCCESSORS. This Agreement will inure to the benefit of
and be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, and personal representatives, and no
other person will have any right or obligation hereunder. The term "successors"
shall not include any purchaser of the Common Shares as such from any of the
Underwriters merely by reason of such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as arc necessary to
make it valid and enforceable.
SECTION 16. (A) GOVERNING LAW PROVISIONS. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts of the
United States of America located in the City and County of San Francisco or the
courts of the State of California in each case located in the City and County of
San Francisco (collectively, the "Specified Courts"), and each party irrevocably
submits to the exclusive jurisdiction (except for proceedings instituted in
regard to the enforcement of a judgment of any such court (a "Related
Judgment"), as to which such jurisdiction is non-exclusive) of such courts in
any such suit, action or proceeding. Service of any process, summons, notice or
document by mail to such party's address set forth above shall be effective
service of process for any suit, action or other proceeding brought in any such
court. The parties irrevocably and unconditionally waive any objection to the
laying of venue of any suit, action or other proceeding in the Specified Courts
and irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such suit, action or other proceeding brought in any such
court has been brought in an inconvenient forum.
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING STOCKHOLDERS TO
SELL AND DELIVER COMMON SHARES. If one or more of the Selling Stockholders
shall fail to sell and deliver to the Underwriters the Common Shares to be sold
and delivered by such Selling Stockholders at the First Closing Date pursuant to
this Agreement, then the Underwriters may at their option, by written notice
from the Representatives to the Company and the Selling Stockholders, either (i)
terminate this Agreement without any liability on the part of any Underwriter
or, except as provided in Sections 4, 6, 8 and 9 hereof, the Company or the
Selling Stockholders, or (ii) purchase the shares which the Company and other
Selling Stockholders have agreed to sell and deliver in accordance with the
terms hereof. If one or more of the Selling Stockholders shall fail to sell and
deliver to the Underwriters the Common
-31-
<PAGE>
Shares to be sold and delivered by such Selling Stockholders pursuant to this
Agreement at the First Closing Date or the Second Closing Date, then the
Underwriters shall have the right, by written notice from the Representatives to
the Company and the Selling Stockholders, to postpone the First Closing Date or
the Second Closing Date, as the case may be, but in no event for longer than
seven days in order that the required changes, if any, to the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected.
SECTION 18. GENERAL PROVISIONS. This Agreement constitutes the
entire agreement of the parties to this Agreement and supersedes all prior
written or oral and all contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may be
executed in two or more counterparts, each one of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement may not be amended or modified unless in writing by
all of the parties hereto, and no condition herein (express or implied) may be
waived unless waived in writing by each party whom the condition is meant to
benefit. The Table of Contents and the Section headings herein are for the
convenience of the parties only and shall not affect the construction or
interpretation of this Agreement.
Each of the parties hereto acknowledges that it is a sophisticated
business person who was adequately represented by counsel during negotiations
regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
fairly allocate the risks in light of the ability of the parties to investigate
the Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
-32-
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to the Company and the Custodian the enclosed copies
hereof, whereupon this instrument, along with all counterparts hereof, shall
become a binding agreement in accordance with its terms.
Very truly yours,
HALL, KINION & ASSOCIATES, INC.
By:
----------------------------
[Title]
SELLING STOCKHOLDERS
By:
----------------------------
(Attorney-in-fact)
The foregoing Underwriting Agreement is hereby confirmed and accepted by
the Representatives in San Francisco, California as of the date first above
written.
MONTGOMERY SECURITIES
ROBERT W. BAIRD & CO. INCORPORATED
THE ROBINSON-HUMPHREY COMPANY, INC.
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By: MONTGOMERY SECURITIES
By:
-------------------------
[Title]
-33-
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF FIRM
COMMON SHARES TO
UNDERWRITERS BE PURCHASED
- ------------ ----------------
<S> <C>
Montgomery Securities........................................ [___]
Robert W. Baird & Co. Incorporated........................... [___]
The Robinson-Humphrey Company, Inc........................... [___]
[___]........................................................ [___]
[___]........................................................ [___]
Total..................................................... [___]
</TABLE>
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF FIRM MAXIMUM NUMBER OF
COMMON SHARES TO OPTIONAL COMMON
SELLING STOCKHOLDER BE SOLD SHARES TO BE SOLD
- ------------------- ----------------- ------------------
<S> <C> <C>
Brenda C. Hall*................................... 250,000 113,175
Todd J. Kinion*................................... 166,666 75,450
Sprout Growth II, L.P.*........................... [_______] [_______]
DLJ Capital Corporation*.......................... [_______] [_______]
Sprout CEO Fund, L.P.*............................ [_______] [_______]
Richard Swanson................................... 10,000 0
Camerlego & Johnson............................... 5,000 0
Total:......................................... 848,333 377,250
======= =======
</TABLE>
* Significant Selling Stockholder
<PAGE>
EXHIBIT A
Opinion of counsel for the Company to be delivered pursuant to Section
5(c) of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any supplements
---------
thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into the Underwriting Agreement and to issue, sell
and deliver to the Underwriters the Firm Common Shares to be sold by the
Company.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in the State of California and in
each other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business,
except for such jurisdictions (other than the State of California) where
the failure to so qualify or to be in good standing would not, individually
or in the aggregate, result in a Material Adverse Change.
(iv) Each of [__________] (each a "significant subsidiary") has been
duly incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has corporate
power and authority to own, lease and operate its properties and to conduct
its business as described in the Prospectus and, to the best knowledge of
such counsel, is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except for such jurisdictions where
the failure to so qualify or to be in good standing would not, individually
or in the aggregate, result in a Material Adverse Change.
(v) All of the issued and outstanding capital stock of each
significant subsidiary has been duly authorized and validly issued, to such
counsel's knowledge is owned by the Company, directly or through
subsidiaries, and is fully paid and non-assessable.
(vi) The authorized capital stock of the Company consists of [______]
shares of authorized Common Stock of which [_______] shares were issued and
outstanding as of [_______], 1997 and [_______] shares of authorized
Preferred Stock. [_______] shares of the Company's Preferred Stock are
designated Series A Preferred Stock of which [_______] shares were issued
and outstanding as of [_______], 1997. The Company has no other capital
stock authorized, issued or outstanding. The Company has reserved
[_______] shares of Common Stock for issuance to employees pursuant to its
Stock Option Plan of which [_______] shares
A-1
<PAGE>
had been exercised and [________] shares were subject to outstanding,
unexercised options as of [_______], 1997. The Company has reserved
[_______] shares of Common Stock for issuance to IT professionals under its
IT Professional Stock Option Plan of which [_______] shares had been
exercised and [_______] shares were subject to outstanding, unexercised
options as of [_______], 1997. The Company has reserved [_______] shares of
Common Stock for issuance under its Employee Stock Purchase Plan. All of
the outstanding shares of Common Stock (including the shares of Common
Stock owned by Selling Stockholders) have been duly authorized and validly
issued and are to such counsel's knowledge fully paid and nonassessable.
The form of certificate used to evidence the Common Stock is in due and
proper form and complies with all applicable requirements of the charter
and by-laws of the Company and the General Corporation Law of the State of
Delaware. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted
and exercised thereunder, set forth in the Prospectus accurately and fairly
presents the information required to be shown with respect to such plans,
arrangements, options and rights.
(vii) No stockholder of the Company or any other person has any
preemptive right, right of first refusal or other similar right to
subscribe for or purchase securities of the Company arising (i) by
operation of the charter or by-laws of the Company or the General
Corporation Law of the State of Delaware or (ii) to the best knowledge of
such counsel, otherwise.
(viii) The Underwriting Agreement has been duly authorized, executed
and delivered by the Company.
(ix) The Common Shares to be purchased by the Underwriters from the
Company have been duly authorized for issuance and sale pursuant to the
Underwriting Agreement and, when issued and delivered by the Company
pursuant to the Underwriting Agreement against payment of the consideration
set forth therein, will be validly issued, fully paid and nonassessable.
(x) (I) Each of the Registration Statement and the Rule 462(b)
Registration Statement, if any, has been declared effective by the
Commission under the Securities Act and to such counsel's knowledge, no
stop order suspending the effectiveness of either of the Registration
Statement or the Rule 462(b) Registration Statement, if any, has been
issued under the Securities Act and no proceedings for such purpose have
been instituted or are pending or are contemplated or threatened by the
Commission, and (II) any required filing of the Prospectus and any
supplement thereto pursuant to Rule 424(b) under the Securities Act has
been made in the manner and within the time period required by such Rule
424(b).
(xi) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus, and each amendment or supplement to
the Registration Statement and the Prospectus, as of their respective
effective or issue dates (other than the financial statements and
supporting schedules included therein or in exhibits to or excluded from
the Registration Statement, as to which no opinion need be rendered) comply
as to form in all material respects with the applicable requirements of the
Securities Act and the Exchange Act.
A-2
<PAGE>
(xii) The Common Shares have been approved for listing on the Nasdaq
National Market.
(xiii) The statements (i) in the Prospectus under the captions
"Description of Capital Stock" and "Shares Eligible for Future Sale" and
(ii) in Item 14 and Item 15 of the Registration Statement, insofar as such
statements constitute matters of law, summaries of legal matters, the
Company's charter or by-law provisions, documents or legal proceedings, or
legal conclusions, has been reviewed by such counsel and fairly present, to
such counsel's knowledge, and summarize the matters referred to therein.
(xiv) Such counsel does not know of any legal or governmental
actions, suits or proceedings pending or threatened to which the Company is
a party or threatened to be made a party that are required to be disclosed
in the Registration Statement, other than those disclosed therein.
(xv) Such counsel does not know of any Existing Instruments required
to be described or referred to in the Registration Statement or to be filed
as exhibits thereto other than those described or referred to therein or
filed or incorporated by reference as exhibits thereto.
(xvi) No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or
agency, is required for the Company's execution, delivery and performance
of the Underwriting Agreement and consummation of the transactions
contemplated thereby and by the Prospectus, except as required under the
Securities Act, applicable state securities or blue sky laws and from the
NASD.
(xvii) The issue and sale by the Company of the Firm Common Shares as
contemplated by the Underwriting Agreement by the Company (i) have been
duly authorized by all necessary corporate action on the part of the
Company; (ii) will not result in any violation of the provisions of the
charter or by-laws of the Company or any subsidiary; (iii) will not
constitute a material breach of, or Default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or any of its subsidiaries pursuant to, (A) the
Company's Revolving Credit Facility with Comerica Bank, as lender, or (B)
to the knowledge of such counsel, any other material Existing Instrument;
or (iv) to the knowledge of such counsel, will not result in any violation
of any law, administrative regulation or administrative or court decree
applicable to the Company or any subsidiary.
(xviii) Except as disclosed in the Prospectus under the caption
"Shares Eligible for Future Sale", to the knowledge of such counsel, there
are no persons with registration or other similar rights to have any equity
or debt securities registered for sale under the Registration Statement or
included in the offering contemplated by the Underwriting Agreement, other
than the Selling Stockholders, except for such rights as have been duly
satisfied or waived.
(xix) To the knowledge of such counsel, neither the Company nor any
subsidiary is in violation of its charter or by-laws or any law,
administrative regulation or administrative or court
A-3
<PAGE>
decree applicable to the Company or any subsidiary, except in each such
case for such violations as would not, individually or in the aggregate,
result in a Material Adverse Change.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public or certified public accountants
for the Company and with representatives of the Underwriters at which the
contents of the Registration Statement and the Prospectus, and any
supplements or amendments thereto, and related matters were discussed and,
although such counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus (other than as
specified in (xiii) above), and any supplements or amendments thereto, on
the basis of the foregoing, nothing has come to their attention which would
lead them to believe that either the Registration Statement or any
amendments thereto, at the time the Registration Statement or such
amendments became effective, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
Prospectus, as of its date or at the First Closing Date or the Second
Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading (it being understood that such counsel need
express no belief as to the financial statements or schedules or other
financial or statistical data derived therefrom, included in the
Registration Statement or the Prospectus or any amendments or supplements
thereto).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware, the General Corporation Law of the
State of Delaware or the federal law of the United States, to the extent they
deem proper and specified in such opinion, upon the opinion (which shall be
dated the First Closing Date or the Second Closing Date, as the case may be,
shall be satisfactory in form and substance to the Underwriters, shall expressly
state that the Underwriters may rely on such opinion as if it were addressed to
them and shall be furnished to the Representatives) of other counsel of good
standing whom they believe to be reliable and who are satisfactory to counsel
for the Underwriters; provided, however, that such counsel shall further state
that they believe that they and the Underwriters are justified in relying upon
such opinion of other counsel, and (B) as to matters of fact, to the extent they
deem proper, on certificates of responsible officers of the Company and public
officials.
A-4
<PAGE>
EXHIBIT B
The opinion of such counsel pursuant to Section 5(i) shall be rendered
to the Representatives at the request of the Company and shall so state therein.
References to the Prospectus in this Exhibit B include any supplements thereto
---------
at the Closing Date.
(i) The Underwriting Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Stockholder.
(ii) The sale by the Selling Stockholders of the Firm Shares and, if
applicable, the Optional Shares as contemplated by the Underwriting
Agreement, and the execution, delivery and performance of its obligations
under its Custody Agreement and its Power of Attorney will not to such
counsel's knowledge, violate or contravene any provision of applicable law
or regulation, or any judgment, order or decree applicable to such Selling
Stockholder of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over such Selling
Stockholder.
(iii) Each of the Custody Agreement and Power of Attorney of such
Selling Stockholder has been duly authorized, executed and delivered by
such Selling Stockholder.
(iv) Assuming that the Underwriters purchase the Common Shares which
are sold by such Selling Stockholder pursuant to the Underwriting Agreement
for value, in good faith and without notice of any adverse claim (as
defined in the California Commercial Code), the delivery of such Common
Shares pursuant to the Underwriting Agreement will pass good title to such
Common Shares, free of any adverse claim as defined in the California
Commercial Code.
(v) To such counsel's knowledge, no consent, approval, authorization
or other order of, or registration or filing with, any court or
governmental authority or agency, is required for the consummation by such
Selling Stockholder of the transactions contemplated in the Underwriting
Agreement, except as required under the Securities Act, applicable state
securities or blue sky laws, and from the NASD.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the Corporation
Law of the State of California, the General Corporation Law of the State of
Delaware or the federal law of the United States, to the extent they deem proper
and specified in such opinion, upon the opinion (which shall be dated the First
Closing Date or the Second Closing Date, as the case may be, shall be
satisfactory in form and substance to the Underwriters, shall expressly state
that the Underwriters may rely on such opinion as if it were addressed to them
and shall be furnished to the Representatives) of other counsel of good standing
whom they believe to be reliable and who are satisfactory to counsel for the
Underwriters; provided, however, that such counsel shall further state that they
believe that they and the Underwriters are justified in relying upon such
opinion of other counsel, and (B) as to matters of fact, to the extent they deem
proper, on certificates of the Selling Stockholders and public officials.
C-1
<PAGE>
EXHIBIT C
[Date]
Montgomery Securities
The Robinson-Humphrey Company, Inc.
Robert W. Baird & Co. Incorporated
As Representatives of the Several Underwriters
c/o Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
RE: Hall, Kinion & Associates, Inc. (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry out
a public offering of Common Stock (the "Offering") for which you will act as the
representatives of the underwriters. The undersigned recognizes that the
Offering will be of benefit to the undersigned and will benefit the Company by,
among other things, raising additional capital for its operations. The
undersigned acknowledges that you and the other underwriters are relying on the
representations and agreements of the undersigned contained in this letter in
carrying out the Offering and in entering into underwriting arrangements with
the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, without the prior written consent of Montgomery Securities
(which consent may be withheld in its sole discretion), directly or indirectly,
sell, offer, contract or grant any option to sell (including without limitation
any short sale), pledge, transfer, establish an open "put equivalent position"
within the meaning of Rule 16a-1 (h) under the Securities Exchange Act of 1934,
as amended, or otherwise dispose of any shares of Common Stock, options or
warrants to acquire shares of Common Stock, or securities exchangeable or
exercisable for or convertible into shares of Common Stock currently or
hereafter owned either of record or beneficially (as defined in Rule 13d-3 under
Securities Exchange Act of 1934, as amended) by the undersigned, or publicly
announce the undersigned's intention to do any of the foregoing, for a period
commencing on the date hereof and continuing through the close of trading on the
date 180 days after the date of the Final Prospectus; provided, however, that
-------- -------
such restrictions shall not apply to shares of Common Stock sold or purchased in
the Offering; and, provided, further, that such restrictions shall not apply to
-------- -------
shares of Common Stock purchased by the undersigned in the open market following
the Offering. The undersigned also agrees and consents to the entry of stop
transfer instructions with the Company's transfer agent and registrar against
the transfer of shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock held by the undersigned except in
compliance with the foregoing restrictions.
C-1
<PAGE>
Notwithstanding the foregoing, if the undersigned is an individual, he or she
may transfer any securities of the Company either during his or her lifetime or
on death by gift, will or intestacy to his or her immediate family or to a
trust, the beneficiaries of which are exclusively the undersigned and/or a
member of members of his or her immediate family; provided, however, that in
-------- -------
each such case described in this paragraph the transferee agrees in writing to
be bound by the provisions of this Agreement and there shall be no further
transfer of such securities except in accordance with this Agreement. For
purposes of this Agreement, "immediate family" shall mean spouse, lineal
descendant, father, mother, brother or sister of the transferor.
In addition, notwithstanding the foregoing: (i) if the undersigned is a
partnership or similar entity, the partnership or entity may transfer securities
of the Company to a partner or member of such partnership or entity, or to the
estate of any such partner or member, in accordance with his or her pro rata
interest in the partnership or entity, and any partner or member who is an
individual may subsequently transfer by gift, will or intestate succession to
his or her immediate family; and (ii) if the undersigned is a corporation, the
corporation may transfer shares to any shareholder of such corporation in
accordance with his or her pro rata interest in the corporation, and any
shareholder who is an individual may subsequently transfer shares by gift, will
or intestate succession to his or her immediate family; provided, however, that
-------- -------
in each case described in this paragraph, the transferee agrees in writing to be
bound by the provisions of this Agreement.
This agreement is irrevocable and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned.
- ---------------------------------
Printed Name of Holder
By:
------------------------------
Signature
- ---------------------------------
Printed Name of Person Signing
(and indicate capacity of person signing if
signing as custodian, trustee, or on behalf
of an entity)
C-2
<PAGE>
EXHIBIT 10.17
[LOGO OF COMERICA APPEARS HERE]
LOAN & SECURITY AGREEMENT
(ACCOUNTS AND INVENTORY)
- --------------------------------------------------------------------------------
OBLIGOR # NOTE # AGREEMENT DATE
April 26, 1995
- --------------------------------------------------------------------------------
CREDIT LIMIT INTEREST RATE B + 1.00% OFFICER NO./INITIALS
$2,500,000.00 10.00% 48117 BRAD SMITH
- --------------------------------------------------------------------------------
THIS AGREEMENT is entered into on APRIL 26, 1995, between COMERICA
BANK-CALIFORNIA ("Bank") as secured party, whose Headquarter Office is 333 WEST
SANTA CLARA STREET, SAN JOSE, CA and HALL, KINION & ASSOCIATES, INC.
("Borrower"), a CORPORATION whose sole place of business (if it has only one),
chief executive office (if it has more than one place of business) or residence
(if an individual) is located at 5300 STEVENS CREEK BOULEVARD, SAN JOSE, CA.
The parties agree as follows:
1. DEFINITIONS
-----------
1.1 "Agreement" as used in this Agreement means and includes this
Loan & Security Agreement (Accounts and Inventory), any concurrent or
subsequent rider to this Loan & Security Agreement (Accounts and
Inventory) and any extensions, supplements, amendments or modifications to
this Loan & Security Agreement (Accounts and Inventory) and to any such
rider.
1.2 "Bank Expenses" as used in this Agreement means and includes: all
costs or expenses required to be paid by Borrower under this Agreement
which are paid or advanced by Bank; taxes and insurance premiums of every
nature and kind of Borrower paid by Bank; filing, recording, publication
and search fees, appraiser fees, auditor fees and costs, and title
insurance premiums paid or incurred by Bank in connection with Bank's
transactions with Borrower; costs and expenses incurred by Bank in
collecting the Receivables (with or without suit) to correct any default
or enforce any provision of this Agreement, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, disposing
of, preparing for sale and/or advertising to sell the Collateral, whether
or not a sale is consummated; costs and expenses of suit incurred by Bank
in enforcing or defending this Agreement or any portion hereof, including,
but not limited to, expenses incurred by Bank in attempting to obtain
relief from any stay, restraining order, injunction or similar process
which prohibits Bank from exercising any of its rights or remedies; and
attorneys' fees and expenses incurred by Bank in advising, structuring,
drafting, reviewing, amending, terminating, enforcing, defending or
concerning this Agreement, or any portion hereof or any agreement related
hereto, whether or not suit is brought. Bank Expenses shall include Bank's
in-house legal charges at reasonable rates.
1.3 "Base Rate" as used in this Agreement means that variable rate of
interest so announced by Bank at its headquarters office in San Jose,
California as its "Base Rate" from time to time and which serves as the
basis upon which effective rates of interest are calculated for those
loans making reference thereto.
1.4 "Borrower's Books" as used in this Agreement means and includes
all of the Borrower's books and records including but not limited to:
minute books; ledgers; records indicating, summarizing or evidencing
Borrower's assets, liabilities, Receivables, business operations or
financial condition, and all information relating thereto, computer
programs; computer disk or tape files; computer printouts; computer runs;
and other computer prepared information and equipment of any kind.
1.5 "Borrowing Base" as used in this Agreement means the sum of: (1)
EIGHTY percent (80.00%) of the net amount of Eligible Accounts after
deducting therefrom all payments, adjustments and credits applicable
thereto ("Accounts Receivable Borrowing Base"); and (2) the amount, if
any, of the advances against Inventory agreed to be made pursuant to any
Inventory Rider ("Inventory Borrowing Base"), or other rider, amendment or
modification to this Agreement, that may now or hereafter be entered into
by Bank and Borrower.
1.6 "Cash Flow" as used in this Agreement means for any applicable
period of determination, the Net Income (after deduction for income taxes
and other taxes of such person determined by reference to income or
profits of such person) for such period, plus, to the extent deducted in
computation of such Net Income, the amount of depreciation and
amortization expense and the amount of deferred tax liability during such
period, all as determined in accordance with GAAP. The applicable period
of determination will be one year, beginning with the period from June 30,
1995 to each June 30 thereafter.
1.7 "Collateral" as used in this Agreement means and includes each
and all of the following: the Receivables; the Intangibles; the negotiable
collateral, the Inventory; all money, deposit accounts and all other
assets of Borrower in which Bank receives a security interest or which
hereafter come into the possession, custody or control of Bank; and the
proceeds of any of the foregoing, including, but not limited to, proceeds
of insurance covering the collateral and any and all Receivables,
Intangibles, negotiable collateral, Inventory, equipment, money, deposit
accounts or other tangible and intangible property of borrower resulting
from the sale or other disposition of the collateral, and the proceeds
thereof. Notwithstanding anything to the contrary contained herein,
collateral shall not include any waste or other materials which have been
or may be designated as toxic or hazardous by Bank.
1.
<PAGE>
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
1.8 "Credit" as used in this Agreement means all Obligations, except
those obligations arising pursuant to any other separate contract, instrument,
note, or other separate agreement which, by its terms, provides for a specified
interest rate and term.
1.9 "Current Assets" as used in this Agreement means, as of any
applicable date of determination, all cash, nonaffiliated customer receivables,
United States government securities, claims against the United States
government, and inventories and any other current asset that should be
classified as current in accordance with GAAP.
1.10 "Current Liabilities" as used in this Agreement means, as of any
applicable date of determination, (i) all liabilities of a person that should be
classified as current in accordance with GAAP, including without limitation any
portion of the principal of the indebtedness classified as current, plus (ii) to
the extent not otherwise included, all liabilities of the Borrower to any of its
affiliates whether or not classified as current in accordance with GAAP.
1.11 "Daily Balance" as used in this Agreement means the amount
determined by taking the amount of the Credit owed at the beginning of a given
day, adding any new Credit advanced or incurred on such date, and subtracting
any payments or collections which are deemed to be paid and are applied by Bank
in reduction of the Credit on that date under the provisions of this Agreement.
1.12 "Eligible Accounts" as used in this Agreement means and includes
those accounts of Borrower which are due and payable within THIRTY (30) days, or
less, from the date of invoice, have been validly assigned to Bank and strictly
comply with all of Borrower's warranties and representations to Bank; but
Eligible Accounts shall not include the following: (a) accounts with respect to
which the account debtor is an officer, employee, partner, joint venturer or
agent of Borrower; (b) accounts with respect to which goods are placed on
consignment, guaranteed sale or other terms by reason of which the payment by
the account debtor may be conditional; (c) accounts with respect to which the
account debtor is not a resident of the United States; (d) accounts with respect
to which the account debtor is the United States or any department, agency or
instrumentality of the United States; (e) accounts with respect to which the
account debtor is any State of the United States or any city, county, town,
municipality or division thereof; (f) accounts with respect to which the account
debtor is a subsidiary of, related to, affiliated or has common shareholders,
officers or directors with Borrower; (g) accounts with respect to which Borrower
is or may become liable to the account debtor for goods sold or services
rendered by the account debtor to Borrower; (h) accounts not paid by an account
debtor within ninety (90) days from the date of the invoice; (i) accounts with
respect to which account debtors dispute liability or make any claim, or have
any defense, crossclaim, counterclaim, or offset; (j) accounts with respect to
which any Insolvency Proceeding is filed by or against the account debtor, or if
an account debtor becomes insolvent, fails or goes out of business; and (k)
accounts owed by any single account debtor which exceed twenty percent (20%) of
all of the Eligible Accounts; and (l) accounts with a particular account debtor
on which over twenty-five percent (25%) of the aggregate amount owing is greater
than ninety (90) days from the date of the invoice.
1.13 "Event of Default" as used in this Agreement means those events
described in Section 7 contained herein below.
1.15 "GAAP" as used in this Agreement means as of any applicable
period, generally accepted accounting principles in effect during such period.
1.16 "Insolvency Proceeding" as used in this Agreement means and
includes any proceeding or case commenced by or against the Borrower, or any
guarantor of Borrower's Obligations, or any of Borrower's account debtors, under
any provisions of the Bankruptcy Code, as amended, or any other bankruptcy or
insolvency law, including but not limited to assignments for the benefit of
creditors, formal or informal moratoriums, composition or extensions with some
or all creditors, any proceeding seeking a reorganization, arrangement or any
other relief under the Bankruptcy code, as amended, or any other bankruptcy or
insolvency law.
1.17 "Intangibles" as used in this Agreement means and includes all of
Borrower's present and future general Intangibles and other personal property
(including, without limitation, any and all rights in any legal proceedings,
goodwill, patents, trade names, copyrights, trademarks, blueprints, drawings,
purchase orders, computer programs, computer disks, computer tapes, literature,
reports, catalogs and deposit accounts) other than goods and Receivables, as
well as Borrower's Books relating to any of the foregoing.
2.
<PAGE>
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
1.18 "Inventory" as used in this Agreement means and includes all
present and future inventory in which Borrower has any interest, including, but
not limited to, goods held by Borrower for sale or lease or to be furnished
under a contract of service and all of Borrower's present and future raw
materials, work in process, finished goods, advertising materials, and packing
and shipping materials, wherever located and any documents of title representing
any of the above, and any equipment, fixtures or other property used in the
storing, moving, preserving, identifying, accounting for and shipping or
preparing for the shipping of inventory, and any and all other items hereafter
acquired by Borrower by way of substitution, replacement, return, repossession
or otherwise, and all additions and accessions thereto, and the resulting
product or mass, and any documents of title respecting any of the above.
1.19 "Net Income" as used in this agreement means the net income (or
loss) of a person for any period determined in accordance with GAAP but
excluding in any event:
(a) any gains or losses on the sale or other disposition, not in
the ordinary course of business, of investments or fixed or
capital assets, and any taxes on the excluded gains and any tax
deductions or credits on account on any excluded losses; and
(b) in the case of the Borrower, net earnings of any Person in
which Borrower has an ownership interest, unless such net
earnings shall have actually been received by Borrower in the
form of cash distributions.
1.20 "Judicial Officer or Assignee" as used in this Agreement means
and includes any trustee, receiver, contoller, custodian, assignee for the
benefit of creditors or any other person or entity having powers or duties like
or similar to the powers an duties of trustee, receiver, controller, custodian
or assignee for the benefit of creditors.
1.21 "Obligations" as used in this Agreement means and includes any
and all loans, advances, overdrafts, debts, liabilities (including, without
limitation, any and all amounts charged to Borrower's account pursuant to any
agreement authorizing Bank to charge Borrower's account), obligations, lease
payments, guaranties, covenants and duties owing by Borrower to Bank of any kind
and description whether advanced pursuant to or evidenced by this Agreement; by
any notes or other instrument; or by any other agreement between Bank and
Borrower and whether or not for the payment of money, whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including, without limitation, any debt, liability or
obligation owing from Borrower to others which Bank may have obtained by
assignment, participation, purchase or otherwise, and further including, without
limitation, all interest not paid when due and all Bank Expenses which Borrower
is required to pay or reimburse by this Agreement, by law, or otherwise.
1.22 "Person" or "person" as used in this Agreement means and includes
any individual, corporation, partnership, joint venture, association, trust,
unincorporated association, joint stock company, government, municipality,
political subdivision or agency or other entity.
1.23 "Receivables" as used in this Agreement means and includes all
presently existing and hereafter arising accounts, instruments, documents,
chattel paper, general intangibles, all other forms of obligations owing to
Borrower, all of Borrower's rights in, to and under all purchase orders
heretofore or hereafter received, all monies due to Borrower under all contracts
or agreements (whether or not yet earned or due), all merchandise returned to or
reclaimed by Borrower and the Borrower's books (except minute books) relating to
any of the foregoing.
1.24 "Subordinated Debt" as used in this Agreement means indebtedness
of the Borrower to third parties which has been subordinated to the Obligations
pursuant to a subordination agreement in form and content satisfactory to the
Bank.
1.25 "Subordination Agreement" as used in this Agreement a
subordination agreement in form satisfactory to Bank making all present and
future indebtedness of the Borrower to N/A subordinate to the Indebtedness.
1.26 "Tangible Effective Net Worth" as used in this Agreement means
net worth as determined in accordance with GAAP consistently applied, increased
by subordinated debt if any, and decreased by the following: patents, licenses,
goodwill, subscription lists, organization expenses, trade receivables converted
to notes, and money due from affiliates (including officers, directors,
subsidiaries and commonly held companies.
1.27 "Tangible Net Worth" as used in this Agreement means, as of any
applicable date of determination, the excess of:
(a) the net book value of all assets of a person (other than
patents, patent rights, trademarks, trade names, franchises,
copyrights, licenses, goodwill, and similar tangible assets)
after all appropriate deductions in accordance with GAAP
(including, without limitation, reserves for doubtful
receivables, obsolescence, depreciation and amortization), over
(b) all total liabilities of such person.
1.28 "Total Liabilities" as used in this Agreement means the total of
all items of indebtedness, obligation or liability which, in accordance with
GAAP consistently applied, would be included in determining the total
liabilities of the Borrower as of the date Total Liabilities is to be
determined, including without limitation (a) all obligations secured by any
mortgage, pledge, security interest or other lien or property owned or acquired,
whether or not the obligations secured thereby shall have been assumed; (b) all
obligations which are capitalized lease obligations; and (c) all guaranties,
endorsements or other contingent or surety obligations with respect to the
indebtedness of others, whether
3.
<PAGE>
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
or not reflected on the balance sheets of the Borrower, including any
obligation to furnish funds, directly or indirectly through the purchase of
goods, supplies, services, or by way of stock purchase, capital
contribution, advance or loan or any obligation to enter into a contract
for any of the foregoing.
1.29 "Working Capital" as used in this Agreement means, as of any
applicable date of determination, Current Assets less Current Liabilities.
1.30 Any and all terms used in this Agreement shall be construed and
defined in accordance with the meaning and definition of such terms under
and pursuant to the California Uniform Commercial Code (hereinafter
referred to as the "Code") as amended.
2. LOAN AND TERMS OF PAYMENT
-------------------------
For value received, Borrower promises to pay to the order of Bank such
amount, as provided for below, together with interest, as provided for
below.
2.1 Upon the request of Borrower, made at any time and from time to
time during the term hereof, and so long as no Event of Default has
occurred, Bank shall lend to Borrower an amount equal to the Borrowing
Base; provided, however, that in no event shall Bank be obligated to make
advances to Borrower under this Section 2.1 whenever the Daily Balance
exceeds, at any time, either the Borrowing Base or the sum of TWO MILLION
FIVE HUNDRED THOUSAND AND NO/100 ($2,500,000.00), such amount being
referred to herein as "Overadvance".
2.2 Except as hereinbelow provided, the Credit shall bear interest, on
the Daily Balance owing, at a rate of ONE AND NO/1000 (1.000%) percentage
points per annum above the Base Rate (the "Rate"). The Credit shall bear
interest, from and after the occurrence of an Event of Default and without
constituting a waiver of any such Event of Default, on the Daily Balance
owing, at a rate three (3) percentage points per annum above the Rate. All
interest chargeable under this Agreement that is based upon a per annum
calculation shall be computed on the basis of a three hundred sixty (360)
day year for actual days elapsed.
The Base Rate as of the date of this Agreement is NINE AND NO/1000
(9.000%) per annum. In the event that the Base Rate announced is, from time
to time hereafter, changed, adjustment in the Rate shall be made and based
on the Base Rate in effect on the date of such change. The Rate, as
adjusted, shall apply to the Credit until the Base Rate is adjusted again.
The minimum interest payable by the Borrower under this Agreement shall in
no event be less than N/A per month. All interest payable by Borrower under
the Credit shall be due and payable on the first day of each calendar month
during the term of this Agreement and Bank may, at its option, elect to
treat such interest and any and all Bank Expenses as advances under the
Credit, which amounts shall thereupon constitute Obligations and shall
thereafter accrue interest at the rate applicable to the Credit under the
terms of the Agreement.
2.3 Without affecting Borrower's obligation to repay immediately any
Overadvance in accordance with Section 2.1 hereof, all Overadvances shall
bear additional interest on the amount thereof at a rate equal to N/A
(N/A%) percentage points per month in excess of the interest rate set forth
in Section 2.2, from the date incurred and for each month thereafter, until
repaid in full.
3. TERM
----
3.1 This Agreement shall remain in full force and effect until
terminated by notice, by either party. Notice of such termination shall be
effectuated by mailing of a registered or certified letter not less than
one hundred and twenty (120) days prior to the effective date of such
termination, addressed to the other party at the address set forth herein
and the termination shall be effective as of the date so fixed in such
notice. Notwithstanding the foregoing, should Borrower be in default of one
or more of the provisions of this Agreement, Bank may terminate this
Agreement at any time without notice. Notwithstanding the foregoing, should
either Bank or Borrower become insolvent or unable to meet its debts as
they mature, or fail, suspend, or go out of business, the other party shall
have the right to terminate this Agreement at any time without notice. On
the date of termination all Obligations shall become immediately due and
payable without notice or demand; no notice of termination by Borrower
shall be effective until Borrower shall have paid all Obligations to Bank
in full. Notwithstanding termination, until all Obligations have been fully
satisfied, Bank shall retain its security interest in all existing
Collateral and Collateral arising thereafter, and Borrower shall continue
to perform all of its Obligations.
3.2 After termination and when Bank has received payment in full of
Borrower's Obligations to Bank, Bank shall reassign to Borrower all
Collateral held by Bank, and shall execute a termination of all security
agreements and security interests given by Borrower to Bank, upon the
execution and delivery of mutual general releases.
4. CREATION OF SECURITY INTEREST
-----------------------------
4.1 Borrower hereby grants to Bank a continuing security interest in
all presently existing and hereafter arising Collateral in order to secure
prompt repayment of any and all Obligations owed by Borrower to Bank and in
order to secure prompt performance by Borrower of each and all of its
covenants and Obligations under this Agreement and otherwise created,
Bank's security interest in the Collateral shall attach to all Collateral
without further act on the part of Bank or Borrower. In the event that any
Collateral, including proceeds, is evidenced by or consists of a letter of
credit,
4.
<PAGE>
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
advice of credit, instrument, money, negotiable documents, chattel paper or
similar property (collectively, "Negotiable Collateral"), Borrower shall,
immediately upon receipt thereof, endorse and assign such Negotiable
Collateral over to Bank and deliver actual physical possession of the
Negotiable Collateral to Bank.
4.2 Bank's security interest in Receivables shall attach to all
Receivables without further act on the part of Bank or Borrower. Upon
request from Bank, Borrower shall provide Bank with schedules describing
all Receivables created or acquired by Borrower, twice a year and in the
event of default, (including without limitation agings listing the names
and addresses of, and amounts owing by date of account debtors), and shall
execute and deliver written assignments of all Receivables to Bank all in a
form acceptable to Bank, provided, however, Borrower's failure to execute
and deliver such schedules and/or assignments shall not affect or limit
Bank's security interest and other rights in and to the Receivables.
Together with each schedule, Borrower shall furnish Bank with copies of
Borrower's customers' invoices or the equivalent, and original shipping or
delivery receipts for all merchandise sold, and Borrower warrants the
genuineness thereof. Bank or Bank's designee may notify customers or
account debtors of collection costs and expenses to Borrower's account but,
unless and until Bank does so or gives Borrower other written instructions,
Borrower shall collect all Receivables for Bank, receive in trust all
payments thereon as Bank's trustee, and, if so requested to do so from
Bank, Borrower shall immediately deliver said payments to Bank in their
original form as received from the account debtor and all letters of
credit, advices of credit, instruments, documents, chattel paper or any
similar property evidencing or constituting Collateral. Notwithstanding
anything to the contrary contained herein, if sales of inventory are made
for cash, Borrower shall immediately deliver to Bank, in identical form,
all such cash, checks, or other forms of payment which Borrower receives.
The receipt of any check or other item of payment by Bank shall not be
considered a payment on account until such check or other item of payment
is honored when presented for payment, in which event, said check or other
item of payment shall be deemed to have been paid to Bank TWO (2) calendar
days after the date Bank actually receives such check or other item of
payment.
4.3 Bank's security interest in Inventory shall attach to all
Inventory without further act on the part of Bank or Borrower. Upon Bank's
request Borrower will from time to time at Borrower's expense pledge,
assemble and deliver such Inventory to Bank or to a third party as Bank's
bailee; or hold the same in trust for Bank's account or store the same in a
warehouse in Bank's name; or deliver to Bank documents of title
representing said Inventory; or evidence of Bank's security interest in
some other manner acceptable to Bank. Until a default by Borrower under
this Agreement or any other Agreement between Borrower and Bank, Borrower
may, subject to the provisions hereof and consistent herewith, sell the
Inventory, but only in the ordinary course of Borrower's business. A sale
of Inventory in Borrower's ordinary course of business does not include an
exchange or a transfer in partial or total satisfaction of a debt owing by
Borrower.
4.4 Borrower shall execute and deliver to Bank concurrently with
Borrower's execution of this Agreement, and at any time or times hereafter
at the request of Bank, all financing statements, continuation financing
statements, security agreements, mortgages, assignments, certificates of
title, affidavits, reports, notices, schedules of accounts, letters of
authority and all other documents that Bank may request, reasonable in form
satisfactory to Bank, to perfect and maintain perfected Bank's security
interest in the Collateral and in order to fully consummate all of the
transactions contemplated under this Agreement. Borrower hereby irrevocably
makes, constitutes and appoints Bank (and any of Bank's officers, employees
or agents designated by Bank) as Borrower's true and lawful attorney-in-
fact with power to sign the name of Borrower on any financing statements,
continuation financing statements, security agreement, mortgage,
assignment, certificate of title, affidavit, letter of authority, notice of
other similar documents which must be executed and/or filed in order to
perfect or continue perfected Bank's security interest in the Collateral.
Borrower shall make appropriate entries in Borrower's Books disclosing
Bank's security interest in the Receivables. Bank (through any of its
officers, employees or agents) shall have the right at any time or times
hereafter during Borrower's usual business hours, or during the usual
business hours of any third party having control over the records of
Borrower, to inspect and verify Borrower's Books in order to verify the
amount or condition of, or any other matter, relating to, said Collateral
and Borrower's financial condition, twice per year and in the event of
default.
4.5 Borrower appoints Bank or any other person whom Bank may designate
as Borrower's attorney-in-fact, with power to endorse Borrower's name on
any checks, notes, acceptances, money order, drafts or other forms of
payment or security that may come into Bank's possession; to sign
Borrower's name on any invoice or bill of lading relating to any
Receivables, on drafts against account debtors, on schedules and
assignments of Receivables, on verifications of Receivables and on notices
to account debtors; to establish a lock box arrangement and/or notify the
post office authorities to change the address for delivery of Borrower's
mail addressed to Borrower to an address designated by Bank, to receive and
open all mail addressed to Borrower, and to retain all mail relating to the
Collateral and forward all other mail to Borrower; to send, whether in
writing or by telephone, requests for verification of Receivables; and to
do all things necessary to carry out this Agreement. Borrower ratifies and
approves all acts of the attorney-in-fact. Neither Bank nor its
attorney-in-fact will be liable for any acts or omissions or for any error
of judgments or mistake of fact or law. This power being coupled with an
interest, is irrevocable so long as any Receivables in which Bank has a
security interest remain unpaid and until the Obligations have been fully
satisfied.
4.6 In order to protect or perfect any security interest which Bank is
granted hereunder, Bank may, in its sole discretion, discharge any lien or
encumbrance or bond the same, pay any insurance, maintain guards,
warehousemen, or any personnel to protect the Collateral, pay any service
bureau, or, obtain any records, and all costs for the same shall be added
to the Obligations and shall be payable on demand.
4.7 Borrower agrees that Bank may provide information relating to this
Agreement or relating to Borrower to Bank's parent, affiliates,
subsidiaries and service providers.
5.
<PAGE>
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
5. CONDITIONS PRECEDENT
--------------------
5.1 Conditions precedent to the making of the loans and the extension
of the financial accommodations hereunder, Borrower shall execute, or cause
to be executed, and deliver to Bank, in form and substance satisfactory to
Bank and its counsel, the following:
(a) This Agreement and other documents required by Bank;
(b) Financing statements (Form UCC-1) in form satisfactory to
Bank for filing and recording with the appropriate governmental
authorities;
(c) If Borrower is a corporation, then certified extracts from
the minutes of the meeting of its board of directors, authorizing
the borrowings and the granting of the security interest provided
for herein and authorizing specific officers to execute and
deliver the agreements provided for herein;
(d) If Borrower is a corporation, then a certificate of good
standing showing that Borrower is in good standing under the laws
of the state of its incorporation and certificates indicating that
Borrower is qualified to transact business and is in good standing
in any other state in which it conducts business;
(e) If Borrower is a partnership, then a copy of Borrower's
partnership agreement certified by each general partner of
Borrower;
(f) UCC searches, tax lien and litigation searches, fictitious
business statement filings, insurance certificates, notices or
other similar documents which Bank may require and in such form as
Bank may require, in order to reflect, perfect or protect Bank's
first priority security interest in the Collateral and in order to
fully consummate all of the transactions contemplated under this
Agreement;
(g) Evidence that Borrower has obtained insurance and acceptable
endorsements;
(h) Waivers executed by landlords and mortgagees of any real
property on which any Collateral is located; and
(i) Warranties and representations of officers.
6. WARRANTIES, REPRESENTATIONS AND COVENANTS.
------------------------------------------
6.1 If so requested by Bank, Borrower shall, at such intervals
designated by Bank, during the term hereof execute and deliver a Report of
Accounts Receivable or similar report, in form customarily used by Bank.
Borrower's Borrowing Base at all times pertinent hereto shall not be less
than the advances made hereunder. Bank shall have the right to recompute
Borrower's Borrowing Base in conformity with this Agreement.
6.2 If any warranty is breached as to any account, or any account is
not paid in full by an account debtor within NINETY (90) days from the date
of invoice, or an account debtor disputes liability or makes any claim with
respect thereto, or a petition in bankruptcy or other application for
relief under the Bankruptcy Code or any other insolvency law is filed by or
against an account debtor, or an account debtor makes an assignment for the
benefit of creditors, becomes insolvent, fails or goes out of business,
then Bank may deem ineligible any and all accounts owing by that account
debtor, and reduce Borrower's Borrowing Base by the amount thereof. Bank
shall retain its security interest in all Receivables and accounts, whether
eligible or ineligible, until all Obligations have been fully paid and
satisfied. Returns and allowances, if any, as between Borrower and its
customers, will be on the same basis and in accordance with the usual
customary practices of the Borrower, as they exist at this time. Any
merchandise which is returned by an account debtor or otherwise recovered
shall be set aside, marked with Bank's name, and Bank shall retain a
security interest therein. Borrower shall promptly notify Bank of all
disputes and claims and settle or adjust them on terms approved by Bank.
After default by Borrower hereunder, no discount, credit or allowance shall
be granted to any account debtor by Borrower and no return of merchandise
shall be accepted by Borrower without Bank's consent. Bank may, after
default by Borrower, settle or adjust disputes and claims directly with
account debtors for amounts and upon terms which Bank considers advisable,
and in such cases Bank will credit Borrower's account with only the net
amounts received by Bank in payment of the accounts, after deducting all
Bank Expenses in connection therewith.
6.3 Borrower warrants, represents, covenants and agrees that:
(a) Borrower has good and marketable title to the Collateral.
Bank has and shall continue to have a first priority perfected
security interest in and to the Collateral. The Collateral shall
at all times remain free and clear of all liens, encumbrances and
security interests (except those in favor of Bank).
(b) All accounts are and will, at all times pertinent hereto, be
bona fide existing Obligations created by the sale and delivery of
merchandise or the rendition of services to account debtors in the
ordinary course of business, free of liens, claims, encumbrances
and security interests (except as held by Bank and except as may
be consented to, in writing, by Bank) and are unconditionally owed
to Borrower without defenses, disputes, offsets, counterclaims,
rights of return or cancellation, and Borrower shall have received
no notice of actual or imminent bankruptcy or insolvency of any
account debtor at the time an account due from such account debtor
is assigned to Bank.
6.
<PAGE>
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
(c) At the time each account is assigned to Bank, all property
giving rise to such account shall have been delivered to the
account debtor or to the agent for the account debtor for
immediate shipment to, and unconditional acceptance by, the
account debtor. Borrower shall deliver to Bank, as Bank may from
time to time require, delivery receipts, customer's purchase
orders, shipping instructions, bills of lading and any other
evidence of shipping arrangements. Absent such a request by Bank,
copies of all such documentation shall be held by Borrower as
custodian for Bank.
6.4 At the time each eligible account is assigned to Bank, all such
eligible accounts will be due and payable on terms set forth in Section
1.12, or on such other terms approved in writing by Bank in advance of the
creation of such accounts and which are expressly set forth on the face of
all invoices, copies of which shall be held by Borrower as custodian for
Bank, and no such eligible account will then be past due.
6.6 Borrower represents, warrants and covenants with Bank that
Borrower will not, without Bank's prior written consent:
(a) Grant a security interest in or permit a lien, claim or
encumbrance upon any of the Collateral to any person, association,
firm, corporation, entity or governmental agency or
instrumentality;
(b) Permit any levy, attachment or restraint to be made affecting
any of Borrower's assets;
(c) Permit any judicial officer or assignee to be appointed or to
take possession of any or all of Borrower's assets;
(d) Other than sales of Inventory in the ordinary course of
Borrower's business, to sell, lease, or otherwise dispose of,
move, or transfer, whether by sale or otherwise, any of Borrower's
assets;
(e) Change its name, business structure, corporate identity or
structure; add any new fictitious names, liquidate, merge or
consolidate with or into any other business organization;
(f) Move or relocate any Collateral;
(g) Acquire any other business organization;
7.
<PAGE>
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
(h) Enter into any transaction not in the usual course of
Borrower's business;
(i) Make any investment in securities of any person, association,
firm, entity, or corporation other than the securities of the
United States of America;
(j) Make any change in Borrower's financial structure or in any
of its business objectives, purposes or operations which would
adversely affect the ability of Borrower to repay Borrower's
Obligations;
(k) Incur any debts outside the ordinary course of Borrower's
business except renewals or extensions of existing debts and
interest thereon;
(l) Make any advance or loan except in the ordinary course of
Borrower's business as currently conducted;
(m) Make loans, advances or extensions of credit to any Person,
except for sales on open account and otherwise in the ordinary
course of business;
(n) Guarantee or otherwise, directly or indirectly, in any way be
or become responsible for obligations of any other person, whether
by agreement to purchase the indebtedness of any other Person,
agreement for the furnishing of funds to any other Person through
the furnishing of goods, supplies or services, by way of stock
purchase, capital contribution, advance or loan, for the purpose
of paying or discharging (or causing the payment or discharge of)
the indebtedness of any other person, or otherwise, except for the
endorsement of negotiable instruments by the Borrower in the
ordinary course of business for deposit or collection;
(o) (a) Sell, lease, transfer or otherwise dispose of properties
and assets having an aggregate book value of more than two hundred
-----------
and fifty thousand Dollars ($250,000) (whether in one transaction
------------------ --------
or in a series of transactions) except as to the sale of inventory
in the ordinary course of business; (b) change its name,
consolidate with or merge into any other corporation, permit
another corporation to merge into it, acquire all or substantially
all the properties or assets of any other Person, enter into any
reorganization or recapitalization or reclassify its capital
stock, or (c) enter into any sale-leaseback transaction;
(p) Purchase or hold beneficially any stock or other securities
of, or make any investment or acquire any interest whatsoever in,
any other Person, except for the common stock of the Subsidiaries
owned by the Borrower on the date of this Agreement and except for
certificates of deposit with maturities of one year or less of
United States commercial banks with capital, surplus and undivided
profits in excess of One Hundred Million Dollars ($100,000,000)
and direct obligations of the United States Government maturing
within one year from the date of acquisition thereof;
(q) Allow any fact, condition or event to occur or exist with
respect to any employee pension or profit sharing plans
established or maintained by it which might constitute grounds for
termination of any such plan or for the court appointment of a
trustee to administer any such plan.
6.7 Borrower is not a merchant whose sales for resale of goods for
personal, family or household purposes exceeded seventy-five percent (75%)
in dollar volume of its total sales of all goods during the twelve (12)
months preceding the filing by Bank of a financing statement describing the
Collateral. At no time hereafter shall Borrower's sales for resale goods
for personal, family or household purposes exceed seventy-five percent
(75%) in dollar volume of its total sales.
6.8 Borrower's sole place of business or chief executive office or
residence is located at the address indicated above and Borrower covenants
and agrees that it will not, during the term of this Agreement, without
prior written notification to Bank, relocate said sole place of business or
chief executive office or residence.
6.9 If Borrower is a corporation, Borrower represents, warrants and
covenants as follows:
(a) Borrower will not make any distribution or declare or pay any
dividend (in stock or in cash) to any shareholder or on any of its
capital stock, of any class, whether now or hereafter outstanding,
or purchase, acquire, repurchase, or redeem or retire any such
capital stock;
(b) Borrower is and shall at all times hereafter be a corporation
duly organized and existing in good standing under the laws of the
state of its incorporation and qualified and licensed to do
business in California or any other state in which it conducts its
business;
8.
<PAGE>
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
(c) Borrower has the right and power and is duly authorized to
enter into this Agreement; and
(d) The execution by Borrower of this Agreement shall not
constitute a breach of any provision contained in Borrower's
articles of incorporation or by-laws.
6.10 The execution of and performance by Borrower of all of the terms
and provisions contained in this Agreement shall not result in a breach of
or constitute an event of default under any Agreement to which Borrower is
now or hereafter becomes a party.
6.12 All assessments and taxes, whether real, personal or otherwise,
due or payable by, or imposed, levied or assessed against, Borrower or any
of its property have been paid, and shall hereafter be paid in full, before
delinquency. Borrower shall make due and timely payment or deposit of all
federal, state and local taxes, assessments or contributions required of it
by law, and will execute and deliver to Bank, on demand, appropriate
certificates attesting to the payment or deposit thereof. Borrower will
make timely payment or deposit of all F.I.C.A. payments and withholding
taxes required of it by applicable laws, and will upon request furnish Bank
with proof satisfactory to it that Borrower has made such payments or
deposit. If Borrower fails to pay any such assessment, tax, contribution,
or make such deposit, or furnish the required proof, Bank may, in its sole
and absolute discretion and without notice to Borrower, (i) make payment of
the same or any part thereof, or (ii) set up such reserves in Borrower's
account as Bank deems necessary to satisfy the liability therefor, or both.
Bank may conclusively rely on the usual statements of the amount owing or
other official statements issued by the appropriate governmental agency.
Each amount so paid or deposited by Bank shall constitute a Bank Expense
and an additional advance to Borrower.
6.13 There are no actions or proceedings pending by or against
Borrower or any guarantor of Borrower before any court or administrative
agency and Borrower has no knowledge of any pending, threatened or imminent
litigation, governmental investigations or claims, complaints, actions or
prosecutions involving Borrower or any guarantor of Borrower, except as
heretofore specifically disclosed in writing to Bank. If any of the
foregoing arise during the term of the Agreement, Borrower shall
immediately notify Bank in writing.
6.14 (a) Borrower, at its expense, shall keep and maintain its assets
insured against loss or damage by fire, theft, explosion, sprinklers
and all other hazards and risks ordinarily insured against by other
owners who use such properties in similar businesses for the full
insurable value thereof. Borrower shall also keep and maintain business
interruption insurance and public liability and property damage
insurance relating to Borrower's ownership and use of the Collateral
and its other assets. All such policies of insurance shall be in such
form, with such companies, and in such amounts as may be satisfactory
to Bank. Borrower shall deliver to Bank certified copies of such
policies of insurance and evidence of the payments of all premiums
therefor. All such policies of insurance (except those of public
liability and property damage) shall contain an endorsement in a form
satisfactory to Bank showing Bank as a loss payee thereof, with a
waiver of warranties (Form 438-BFU), and all proceeds payable
thereunder shall be payable to Bank and, upon receipt by Bank, shall be
applied on account of the Obligations owing to Bank. To secure the
payment of the Obligations, Borrower grants Bank a security interest in
and to all such policies of insurance (except those of public liability
and property damage) and the proceeds thereof, and Borrower shall
direct all insurers under such policies of insurance to pay all
proceeds thereof directly to Bank.
(b) In the event of default, Borrower hereby irrevocably appoints
Bank (and any of Bank's officers, employees or agents designated by
Bank) as Borrower's attorney for the purpose of making, selling and
adjusting claims under such policies of insurance, endorsing the name
of Borrower on any check, draft, instrument or other item of payment
for the proceeds of such policies of insurance and for making all
determinations and decisions with respect to such policies of
insurance. Borrower will not cancel any of such policies without Bank's
prior written consent. Each such insurer shall agree by endorsement
upon the policy or policies of insurance issued by it to Borrower as
required above, or by independent instruments furnished to Bank, that
it will give Bank at least ten (10) days written notice before any such
policy or policies of insurance shall be altered or cancelled, and that
no act or default of Borrower, or any other person, shall affect the
right of Bank to recover under such policy or policies of insurance
required above or to pay any premium in whole or in part relating
thereto. Bank, without waiving or releasing any Obligations or any
Event of Default, may, but shall have no obligation to do so, obtain
and maintain such policies of insurance and pay such premiums and take
any other action with respect to such policies which Bank deems
advisable. All sums so disbursed by Bank, as well as reasonable
attorneys' fees, court costs, expenses and other charges relating
thereto, shall constitute Bank Expenses and are payable on demand.
9.
<PAGE>
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
6.15 All financial statements and information relating to Borrower
which have been or may hereafter be delivered by Borrower to Bank are true
and correct and have been prepared in accordance with GAAP consistently
applied and there has been no material adverse change in the financial
condition of Borrower since the submission of such financial information to
Bank.
6.16 (a) Borrower at all times hereafter shall maintain a standard and
modern system of accounting in accordance with GAAP consistently
applied with ledger and account cards and/or computer tapes and
computer disks, computer printouts and computer records
pertaining to the Collateral which contain information as may
from time to time be requested by Bank, not modify or change its
method of accounting or enter into, modify or terminate any
agreement presently existing, or at any time hereafter entered
into with any third party accounting firm and/or service bureau
for the preparation and/or storage of Borrower's accounting
records without the written consent of Bank first obtained and
without said accounting firm and/or service bureau agreeing to
provide information regarding the Receivables and Inventory and
Borrower's financial condition to Bank; permit Bank and any of
its employees, officers or agents, upon demand, during Borrower's
usual business hours, or at the usual business hour of third
persons having control thereof, to have access to and examine all
of the Borrower's Books relating to the Collateral, Borrower's
Obligations to Bank, Borrower's financial condition and the
results of Borrower's operations and in connection therewith,
permit Bank or any of its agents, employees or officers to copy
and make extracts therefrom.
(b) Borrower shall deliver to Bank within thirty (30) days after
the end of each MONTH, a COMPANY PREPARED balance sheet and
----- ----------------
profit and loss statement covering Borrower's operations and
deliver to Bank within ninety (90) days after the end of each of
Borrower's fiscal years an REVIEWED statement of the financial
--------
condition of he Borrower for each such fiscal year, including but
not limited to, a balance sheet and profit and loss statement and
any other report requested by Bank relating to the Collateral and
the financial condition of Borrower, and a certificate signed by
an authorized employee of Borrower to the effect that all
reports, statements, computer disk or tape files, computer
printouts, computer runs, or other computer prepared information
of any kind or nature relating to the foregoing or documents
delivered or caused to be delivered to Bank under this
subparagraph are complete, correct and thoroughly present the
financial condition of Borrower and that there exists on the date
of delivery to Bank no condition or event which constitutes a
breach or Event of Default under this Agreement.
(c) In addition to the financial statements requested above, the
Borrower agrees to provide Bank with the following schedules:
<TABLE>
<S> <C>
X Accounts Receivable Agings on a MONTHLY basis
---------- ---------------------
X Accounts Payable Agings on a MONTHLY basis
---------- ---------------------
Job Progress Reports on a basis; and
---------- ---------------------
ACCOUNTS RECEIVABLES REPORT on a WEEKLY basis
------------------------------------- ---------------------
</TABLE>
6.17 Borrower shall maintain the following financial ratios and
covenants on a consolidated and non-consolidated basis:
(a) Working Capital in an amount not less than n/a
------------------
-----------------------------------------------------------------
(b) Tangible Effective Net Worth in an amount not less than
$400,000.00
------------------------------------------------------------
-----------------------------------------------------------------
(c) a ratio of Current Assets to Current Liabilities of not
less than 1.0:1.00
---------------------------------------------------
-----------------------------------------------------------------
(d) a quick ratio of cash plus securities plus Receivables to
Current Liabilities of not less than N/A
------------------------
-----------------------------------------------------------------
(e) a ratio of Total Liabilities (less debt subordinated to
Bank) to Tangible Effective Net Worth of less than
4.00:1.00
------------------------------------------------------------
-----------------------------------------------------------------
(f) a ratio of Cash Flow to current portion of long term debt of
not less than 1.50:1.00
-----------------------------------------------
(g) Net Income after taxes of QUARTERLY
-----------------------------------
-----------------------------------------------------------------
(h) Borrower shall not without Bank's prior written consent
acquire or expend for or commit itself to acquire or expend
for fixed assets by lease, purchase or otherwise in an
aggregate amount that exceeds n/a Dollars
-------------
($ n/a ) in any fiscal year; and
------------
(i) ANNUAL PROJECTIONS FOR HALL, KINION & ASSOCIATES, INC.
------------------------------------------------------------
(j) Payroll tax reports on a quarterly basis.
------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
All financial covenants shall be computed in accordance with GAAP
consistently applied except as otherwise specifically set forth in this
Agreement. All monies due from affiliates (including officers, directors and
shareholders) shall be excluded from Borrower's assets for all purposes
hereunder.
10.
<PAGE>
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
6.18 Borrower shall promptly supply Bank (and cause any guarantor to
supply Bank) with such other information (including tax returns) concerning
its affair (or that of any guarantor) as Bank may request from time to time
hereafter, and shall promptly notify Bank of any material adverse change in
Borrower's financial condition and of any condition or event which
constitutes a breach of or an event which constitutes an Event of Default
under this Agreement.
6.19 Borrower is now and shall be at all times hereafter solvent and
able to pay its debts (including trade debts) as they mature.
6.20 Borrower shall immediately and without demand reimburse Bank for
all sums expended by Bank in connection with any action brought by Bank to
correct any default or enforce any provision of this Agreement, including
all Bank Expenses; Borrower authorizes and approves all advances and
payments by Bank for items described in this Agreement as Bank Expenses.
6.21 Each warranty, representation and agreement contained in this
Agreement shall be automatically deemed repeated with each advance and
shall be conclusively presumed to have been relied on by Bank regardless of
any investigation made or information possessed by Bank. The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any and all other warranties, representations and agreements
which Borrower shall give, or cause to be given, to Bank, either now or
hereafter.
6.22 Borrower shall keep all of its principal bank account with Bank
and shall notify the Bank immediately in writing of the existence of any
other bank account, deposit account, or any other account into which money
can be deposited.
6.23 Borrower shall furnish to the Bank: (a) as soon as possible, but
in no event later than thirty (30) days after Borrower knows or has reason
to know that any reportable event with respect to any deferred compensation
plan has occurred, a statement of the chief financial officer of Borrower
setting forth the details concerning such reportable event and the action
which Borrower proposes to take with respect thereto, together with a copy
of the notice of such reportable event given to the Pension Benefit
Guaranty Corporation, if a copy of such notice is available to Borrower;
(b) promptly after the filing thereof with the United States Secretary of
Labor or the Pension Benefit Guaranty Corporation, copies of each annual
report with respect to each deferred compensation plan; (c) promptly after
receipt thereof, a copy of any notice Borrower may receive from the Pension
Benefit Guaranty Corporation or the Internal Revenue Service with respect
to any deferred compensation plan; provided, however, this subparagraph
shall not apply to notice of general application issued by the Pension
Benefit Guaranty Corporation or the Internal Revenue Service; and (d) when
the same is made available to participants in the deferred compensation
plan, all notices and other forms of information from time to time
disseminated to the participants by the administrator of the deferred
compensation plan.
6.24 Borrower is now and shall at all times hereafter remain in
compliance with all federal, state and municipal laws, regulations and
ordinances relating to the handling, treatment and disposal of toxic
substances, wastes and hazardous material and shall maintain all necessary
authorizations and permits.
6.25 Borrower shall maintain insurance on the life of in the
---------
amount not to be less than No/100 Dollars ($ n/a ) under one
----------- -------------
or more policies issued by insurance companies satisfactory to Bank, which
policies shall be assigned to Bank as security for the indebtedness and on
which Bank shall be named as sole beneficiary.
6.26 Borrower shall limit direct and indirect compensation paid to the
following employees: N/A
--------------, -------------, -------------,
to an aggregate of N/A Dollars ($N/A) per N/A.
-------------, --- --- ---
7. EVENTS OF DEFAULT. Any one or more of the following events shall
-----------------
constitute a default by Borrower under this Agreement:
(a) If Borrower fails or neglects to perform, keep or observe any
term, provision, condition, covenant, agreement, warranty or
representation contained in this Agreement, or any other present or
future agreement between Borrower and Bank;
(b) If any representation, statement, report or certificate made
or delivered by Borrower, or any of its officers, employees or agents
to Bank is not true and correct;
(c) If Borrower fails to pay when due and payable or declared due
and payable, all or any portion of the Borrower's Obligations (whether
of principal, interest, taxes, reimbursement of Bank Expenses, or
otherwise);
(d) If there is a material impairment of the prospect of repayment
of all or any portion of Borrower's Obligations or a material
impairment of the value or priority of Bank's security interest in the
Collateral;
(e) If all or any of Borrower's assets are attached, seized,
subject to a writ or distress warrant, or are levied upon, or come into
the possession of any Judicial Officer or Assignee and the same are not
released, discharged or bonded against within ten (10) days thereafter;
(f) If any Insolvency Proceeding is filed or commenced by or
against Borrower without being dismissed within ten (10) days
thereafter;
11.
<PAGE>
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
(g) If any proceeding is filed or commenced by or against Borrower for
its dissolution or liquidation;
(h) If Borrower is enjoined, restrained or in any way prevented by
court order from continuing to conduct all or any material part of its
business affairs;
(i) If a notice of lien, levy or assessment is filed of record with
respect to any or all of Borrower's assets by the United States
Government, or any department, agency or instrumentality thereof, or by
any state, county, municipal or other government agency, or if any
taxes or debts owing at any time hereafter to any one or more of such
entities becomes a lien, whether choate or otherwise, upon any or all
of the Borrower's assets and the same is not paid on the payment date
thereof;
(j) If a judgment or other claim becomes a lien or encumbrance upon
any or all of Borrower's assets and the same is not satisfied,
dismissed or bonded against within ten (10) days thereafter;
(k) If Borrower's records are prepared and kept by an outside computer
service bureau at the time this Agreement is entered into or during the
term of this Agreement such an agreement with an outside service bureau
is entered into, and at any time thereafter, without first obtaining
the written consent of Bank, Borrower terminates, modifies, amends or
changes its contractual relationship with said computer service bureau
or said computer service bureau fails to provide Bank with any
requested information or financial data pertaining to Bank's
Collateral, Borrower's financial condition or the results of Borrower's
operations;
(l) If Borrower permits a default in any material agreement to which
Borrower is a party with third parties so as to result in an
acceleration of the maturity of Borrower's indebtedness to others,
whether under any indenture, agreement or otherwise;
(m) If Borrower makes any payment on account of indebtedness which has
been subordinated to Borrower's Obligations to Bank; when Borrower is
in violation of any loan covenant.
(n) If any misrepresentation exists now or thereafter in any warranty
or representation made to Bank by any officer or director of Borrower,
or if any such warranty or representation is withdrawn by any officer
or director;
(o) If any party subordinating its claims to that of Bank's or any
guarantor of Borrower's Obligations dies or terminates its
subordination or guaranty, becomes insolvent or an insolvency
Proceeding is commenced by or against any such subordinating party or
guarantor;
(p) If Borrower is an individual and Borrower dies;
(q) If there is a change of ownership or control of Ten percent (10%)
or more of the issued and outstanding stock of Borrower; or
(r) If any reportable event, which the Bank determines constitutes
grounds for the termination of any deferred compensation plan by the
Pension Benefit Guaranty Corporation or for the appointment by the
appropriate United States District Court of a trustee to administer any
such plan, shall have occurred and be continuing thirty (30) days after
written notice of such determination shall have been given to Borrower
by Bank, or any such Plan shall be terminated within the meaning of
Title IV of the Employment Retirement Income Security Act ("ERISA"), or
a trustee shall be appointed by the appropriate United States District
Court to administer any such plan, or the Pension Benefit Guaranty
Corporation shall institute proceedings to terminate any plan and in
case of any event described in this Section 7.0, the aggregate amount
of the Borrower's liability to the Pension Benefit Guaranty Corporation
under Sections 4062, 4063 or 4064 of ERISA shall exceed five percent
(5%) of Borrower's Tangible Effective Net Worth.
Notwithstanding anything contained in Section 7 to the contrary,
Bank shall refrain from exercising its rights and remedies and Event of
Default shall thereafter not be deemed to have occurred by reason of
the occurrence of any of the events set forth in Sections 7.e, 7.f or
7.j of this Agreement if, within ten (10) days from the date thereof,
the same is released, discharged, dismissed, bonded against or
satisfied; provided, however, if the event is the institution of
insolvency Proceedings against Borrower, Bank shall not be obligated to
make advances to Borrower during such cure period.
8. BANK'S RIGHTS AND REMEDIES
--------------------------
8.1 Upon the occurrence of an Event of Default by Borrower under
this Agreement, Bank may, at its election, without notice of its
election and without demand, do any one or more of the following, all
of which are authorized by Borrower;
(a) Declare Borrower's Obligations, whether evidenced by this
Agreement, installment notes, demand notes or otherwise, immediately
due and payable to the Bank;
(b) Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement, or any other agreement between Borrower
and Bank;
(c) Terminate this Agreement as to any future liability or obligation
of Bank, but without affecting Bank's rights and security interests in
the Collateral, and the Obligations of Borrower to Bank;
12.
<PAGE>
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
(d) Without notice to or demand upon Borrower or any guarantor, make
such payments and do such acts as Bank considers necessary or
reasonable to protect its security interest in the Collateral. Borrower
agrees to assemble the Collateral if Bank so requires and to make the
Collateral available to Bank as Bank may designate. Borrower authorizes
Bank to enter the premises where the Collateral is located, take and
maintain possession of the Collateral and the premises (at no charge to
Bank), or any part thereof, and to pay, purchase, contest or compromise
any encumbrance, charge or lien which in the opinion of Bank appears to
be prior or superior to its security interest and to pay all expenses
incurred in connection therewith;
(e) Without limiting Bank's rights under any security interest, Bank
is hereby granted a license or other right to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks and advertising matter, or any
property of a similar nature as it pertains to the Collateral, in
completing production of, advertising for sale and selling any
Collateral and Borrower's rights under all licenses and all franchise
agreement shall inure to Bank's benefit, and Bank shall have the right
and power to enter into sublicense agreements with respect to all such
rights with third parties on terms acceptable to Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sales and sell (in the manner provided for
herein) the Inventory;
(g) Sell or dispose the Collateral at either a public or private sale,
or both, by way of one or more contracts or transactions, for cash or
on terms, in such manner and at such places (including Borrower's
premises) as is commercially reasonable in the opinion of Bank. It is
not necessary that the Collateral be present at any such sale;
(h) Bank shall give notice of the disposition of the Collateral as
follows:
(1) Bank shall give the Borrower and each holder of a security
interest in the Collateral who has filed with Bank a written
request for notice, a notice in writing of the time and place of
public sale, or, if the sale is a private sale or some disposition
other than a public sale is to be made of the Collateral, the time
on or after which the private sale or other disposition is to be
made;
(2) The notice shall be personally delivered or mailed, postage
prepaid, to Borrower's address appearing in this Agreement, at
least five (5) calendar days before the date fixed for the sale,
or at least five (5) calendar days before the date on or after
which the private sale or other disposition is to be made, unless
the Collateral is perishable or threatens to decline speedily in
value. Notice to persons other than Borrower claiming an interest
in the Collateral shall be sent to such addresses as have been
furnished to Bank;
(3) If the sale is to be a public sale, Bank shall also give
notice of the time and place by publishing a notice one time at
least five (5) calendar days before the date of the sale in a
newspaper of general circulation in the county in which the sale
is to be held; and
(4) Bank may credit bid and purchase at any public sale.
(i) Borrower shall pay all Bank Expenses incurred in connection with
Bank's enforcement and exercise of any of its rights and remedies as
herein provided, whether or not suit is commenced by Bank;
(j) Any deficiency which exists after disposition of the Collateral as
provided above will be paid immediately by Borrower. Any excess will be
returned, without interest and subject to the rights of third parties,
to Borrower by Bank, or, in Bank's discretion, to any party who Bank
believes, in good faith, is entitled to the excess; and
(k) Without constituting a retention of Collateral in satisfaction of
an obligation within the meaning of 9505 of the Uniform Commercial Code
or an action under California Code of Civil Procedure 726, apply any
and all amounts maintained by Borrower as deposit accounts (as that
term is defined under 9105 of the Uniform Commercial Code) or other
accounts that Borrower maintains with Bank against the Obligations.
8.2 Bank's rights and remedies under this Agreement and all other
agreements shall be cumulative. Bank shall have all other rights and
remedies not inconsistent herewith as provided by law or in equity. No
exercise by Bank of one right or remedy shall be deemed an election, and no
waiver by Bank of any default on Borrower's part shall be deemed a
continuing waiver. No delay by Bank shall constitute a waiver, election or
acquiescence by Bank.
9. TAXES AND EXPENSES REGARDING BORROWER'S PROPERTY
------------------------------------------------
If Borrower fails to pay promptly when due to another person or entity, monies
which Borrower is required to pay by reason of any provision in this Agreement,
Bank may, but need not, pay the same and charge Borrower's account therefor, and
Borrower shall promptly reimburse Bank. All such sums shall become additional
indebtedness owing to Bank, shall bear interest at the rate hereinabove
provided, and shall be secured by all Collateral. Any payments made by Bank
shall not constitute (i) an agreement by it to make similar payments in the
future, or (ii) a waiver by Bank of any default under this Agreement. Bank need
not inquire as to, or contest the validity of, any such expense, tax, security
interest, encumbrance or lien and the receipt of the usual official notice of
the payment thereof shall be conclusive evidence that the same was validly due
and owing. Such payments shall constitute Bank Expenses and additional advances
to Borrower.
13.
<PAGE>
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
10. WAIVERS
-------
10.1 Borrower agrees that checks and other instruments received by
Bank in payment or on account of Borrower's Obligations constitute only
conditional payment until such items are actually paid to Bank and Borrower
waives the right to direct the application of any and all payments at any
time or times hereafter received by Bank on account of Borrower's
Obligations and Borrower agrees that Bank shall have the continuing
exclusive right to apply and reapply such payments in any manner as Bank
may deem advisable, notwithstanding any entry by Bank upon its books.
10.2 Borrower waives demand, protest, notice of protest, notice of
default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension
or renewal of any or all commercial paper, accounts, documents, instruments
chattel paper, and guarantees at any time held by Bank on which Borrower
may in any way be liable.
10.3 Bank shall not in any way or manner be liable or responsible for
(a) the safekeeping of the Inventory; (b) any loss or damage thereof
occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency or other person whomsoever. All
risks of loss, damage or destruction of Inventory shall be borne by
Borrower.
10.4 Borrower waives the right and the right to assert a confidential
relationship, if any, it may have with any accountant, accounting firm
and/or service bureau or consultant in connection with any information
requested by Bank pursuant to or in accordance with this Agreement, and
agrees that a Bank may contact directly any such accountants, accounting
firm and/or service bureau or consultant in order to obtain such
information.
10.5 BORROWER AND BANK EACH WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY TRANSACTION
HEREUNDER, OR CONTEMPLATED HEREUNDER, OR ANY OTHER CLAIM (INCLUDING TORT OR
BREACH OF DUTY CLAIMS) OR DISPUTE HOWSOEVER ARISING BETWEEN BANK AND
BORROWER.
10.6 In the event that Bank elects to waive any rights or remedies
hereunder, or compliance with any of the terms hereof, or delays or fails
to pursue or enforce any term, such waiver, delay or failure to pursue or
enforce shall only be effective with respect to that single act and shall
not be construed to affect any subsequent transactions or Bank's right to
later pursue such rights and remedies.
11. ONE CONTINUING LOAN TRANSACTION. All loans and advances heretofore, now or
--------------------------------
at any time or times hereafter made by Bank to Borrower under this Agreement or
any other agreement between Bank and Borrower, shall constitute one loan secured
by Bank's security interests in the Collateral and by all other security
interests, liens, encumbrances heretofore, now or from time to time hereafter
granted by Borrower to Bank.
Notwithstanding the above, (i) to the extent that any portion of the Obligations
are consumer loan, that portion shall not be secured by any deed of trust or
mortgage on or other security interest in the Borrower's principal dwelling
which is not a purchase money security interest as to that portion, unless
expressly provided to the contrary in another place, or (ii) if the Borrower (or
any of them) has (have) given or give(s) Bank a deed of trust or mortgage
covering real property, that deed of trust or mortgage shall not secure the loan
and any other Obligation of the Borrower (or any of them), unless expressly
provided to the contrary in another place.
12. NOTICES. Unless otherwise provided in this Agreement, all notices or
--------
demands by either party on the other relating to this Agreement shall be in
writing and sent by regular United States mail, postage prepaid, properly
addressed to Borrower or to Bank at the addresses stated in this Agreement, or
to such other addresses as Borrower or Bank may from time to time specify to the
other in writing. Requests to Borrower by Bank hereunder may be made orally.
13. AUTHORIZATION TO DISBURSE. Bank is hereby authorized to make loans and
--------------------------
advances hereunder upon telephonic or other instructions received from anyone
purporting to be an officer, employee, or representative of Borrower, or at the
discretion of Bank if said loans and advances are necessary to meet any
Obligations of Borrower to Bank. Bank shall have no duty to make inquiry or
verify the authority of any such party, and Borrower shall hold Bank harmless
from any damage, claims or liability by reason of Bank's honor of, or failure to
honor, any such instructions.
14. DESTRUCTION OF BORROWER'S DOCUMENTS. Any documents, schedules, invoices or
------------------------------------
other papers delivered to Bank, may be destroyed or otherwise disposed of by
Bank six (6) months after they are delivered to or received by Bank, unless
Borrower requests, in writing, the return of the said documents, schedules,
invoices or other papers and makes arrangements, at Borrower's expense, for
their return.
15. CHOICE OF LAW. The validity of this Agreement, its construction,
--------------
interpretation and enforcement, and the rights of the parties hereunder and
concerning the Collateral, shall be determined according to the laws of the
State of California. The parties agree that all actions or proceedings arising
in connection with this Agreement shall be tried and litigated only in the state
and federal courts in the Northern District of California or the County of Santa
Clara.
16. GENERAL PROVISIONS
------------------
16.1 This Agreement shall be binding and deemed effective when executed by
the Borrower and accepted and executed by Bank at its headquarter office.
14.
<PAGE>
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
16.2 This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties, provided,
however, that Borrower may not assign this Agreement or any rights
hereunder without Bank's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Bank
shall release Borrower or any guarantor from their Obligations to Bank.
Bank may assign this Agreement and its rights and duties hereunder. Bank
reserves the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in Bank's rights and
benefits hereunder. In connection therewith, Bank may disclose all
documents and information which Bank now or hereafter may have relating to
Borrower or Borrower's business.
16.3 Paragraph headings and paragraph numbers have been set forth
herein for convenience only; unless the contrary is compelled by the
context, everything contained in each paragraph applies equally to this
entire Agreement.
16.4 Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against Bank or Borrower, whether under any
rule of construction or otherwise; on the contrary, this Agreement has been
reviewed by all parties and shall be construed and interpreted according to
the ordinary meaning of the words used so as to fairly accomplish the
purposes and intentions of all parties hereto. When permitted by the
context, the singular includes the plural and vice versa.
16.5 Each provision of this Agreement shall be severable from every
other provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
16.6 This Agreement cannot be changed or terminated orally. Except as
to currently existing Obligations owing by Borrower to Bank, all prior
agreements, understandings, representations, warranties, and negotiations,
if any, with respect to the subject matter hereof, are merged into this
Agreement.
16.7 The parties intend and agree that their respective rights,
duties, powers, liabilities, obligations and discretions shall be
performed, carried out, discharged and exercised reasonably and in good
faith.
16.8 In addition, if this Agreement is secured by a deed of trust or
mortgage covering real property, then the trustor or mortgagor shall not
mortgage or pledge the mortgaged premises as security for any other
indebtedness or obligations. This Agreement, together with all other
indebtedness secured by said deed of trust or mortgage, shall become due
and payable immediately, without notice, at the option of Bank, (a) if said
trustor or mortgagor shall mortgage or pledge the mortgaged premises for
any other indebtedness or obligations or shall convey, assign or transfer
the mortgaged premises by deed, installment sale contract or other
instrument; (b) if the title to the mortgaged premises shall become vested
in any other person or party in any manner whatsoever, or (c) if there is
any disposition (through one or more transactions) of legal or beneficial
title to a controlling interest of said trustor or mortgagor.
16.9 All references to "inventory" are considered not applicable for
purposes of this agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Loan & Security
Agreement (Accounts and Inventory) to be executed as of the date first
hereinabove written.
<TABLE>
<S> <C>
ATTEST:
- -----------------------------------------------
Title:
BORROWER: Hall, Kinion & Associates, Inc.
Accepted and effective as of April 26, 1995 By: /s/ Brenda Hall
------------------ --------------------------------------
at Bank's Headquarter Office Signature of Brenda Hall
Title: Chief Executive Officer
----------------------------------
COMERICA BANK-CALIFORNIA By: /s/ Todd Kinion
- ----------------------------------------------- --------------------------------------
Signature of Todd Kinion
By: Title: Vice President
-------------------------------------------- ----------------------------------
Signature of Brad Smith
Title: Assistant Vice President By: /s/ Keith Corbin
---------------------------------------- --------------------------------------
Signature of Keith Corbin
Title: Chief Financial Officer
------------------------------------
By:
---------------------------------------
Signature of
Title:
------------------------------------
</TABLE>
15.
<PAGE>
[LETTERHEAD OF COMERICA APPEARS HERE]
ADDENDUM TO LOAN & SECURITY AGREEMENT
-------------------------------------
Reference is made to that certain Loan & Security Agreement dated April 26,
1995 (the "Agreement") between Comerica Bank-California (the "Bank") and Hall,
Kinion & Associates, Inc. (the "Borrower"). Among other things, the Agreement
provides at Section 7q. that if there is a change of ownership or control of ten
percent (10%) or more of the issued and outstanding stock of Borrower, there is
a default under the Agreement.
Notwithstanding the foregoing provision, the Bank agrees that the Borrower
may sell up to twenty-five percent (25%) of its shares of stock to the Sprout
Group for a purchase price of Ten Million Dollars ($10,000,000), provided that
such sale occurs by no later than March 31, 1996.
Please sign below to indicate your acknowledgment of and agreement to the
foregoing.
HALL, KINION & ASSOCIATES, INC. COMERICA BANK-CALIFORNIA
By: /s/ BRENDA HALL By: /s/ BRAD SMITH
--------------------------- ---------------------------
Title: CEO Title: AVP
------------------------ ------------------------
By: /s/ KEITH CORBIN
---------------------------
Title: CFO
------------------------
<PAGE>
SECOND ADDENDUM TO LOAN & SECURITY AGREEMENT
--------------------------------------------
Reference is made to that certain Loan & Security Agreement dated April 26,
1995 (the "Agreement") between Comerica Bank-California (the "Bank") and Hall,
Kinion & Associates, Inc. (the "Borrower"). Among other things, the Agreement
provides at Section 6.6(h), (l) and (m) respectively, that Borrower represents,
warrants and covenants with Bank that Borrower will not, without Bank's written
consent:
(a) Enter into any transaction not in the usual course of Borrower's
Business;
(b) Make any advance or loan except in the ordinary course of Borrower's
business as currently conducted; and
(c) Make loans, advances or extensions of credit to any Person, except for
sales on open account and otherwise in the ordinary course of business.
Notwithstanding the foregoing provisions, the Bank agrees that the Borrower
may do the following:
(a) Sell up to twenty-five percent (25%) of its shares of stock to the
Sprout Group for a purchase price of Ten Million Dollars ($10,000,000),
provided that such sale occurs by no later than March 31, 1996; and the
Bank is provided with copies of all documents related to the sale and
related loans to the shareholders.
(b) Make loans up to an aggregate of Five Million Dollars ($5,000,000) to
Brenda Hall and Todd Kinion, provided that these loans do not violate any
of the financial covenants contained in the Agreement between the Bank and
the Borrower.
Please sign below to indicate your acknowledgment of and agreement to the
foregoing Second Addendum to Loan & Security Agreement.
HALL, KINION & ASSOCIATES, INC. COMERICA BANK-CALIFORNIA
By: /s/ BRENDA HALL By: /s/ BRAD SMITH
------------------------ ------------------------
Title: CEO Title: AVP
--------------------- ---------------------
By: /s/ KEITH CORBIN
------------------------
Title: CFO
---------------------
<PAGE>
[LETTERHEAD OF COMERICA APPEARS HERE]
MODIFICATION TO LOAN & SECURITY AGREEMENT
-----------------------------------------
This First Modification to Loan & Security Agreement (this "Modification")
is entered into by and between HALL, KINION & ASSOCIATES, INC. ("Borrower") and
-------------------------------
COMERICA BANK-CALIFORNIA ("Bank") as of this 20TH day of DECEMBER, 1995, at San
Jose, California.
RECITIALS
---------
A. Bank and Borrower have previously entered into or are concurrently
herewith entering into a Loan & Security Agreement (Accounts & Inventory) (the
"Agreement") dated APRIL 26, 1995.
Borrower has requested, and Bank has agreed, to modify the Agreement as set
forth below.
AGREEMENT
---------
For good and valuable consideration, the parties agree as set forth below:
Incorporation by Reference. The Agreement as modified hereby and the
--------------------------
Recitals are incorporated herein by this reference.
SECTION 2.1 Upon the request of the Borrower, made at any time
and from time to time during the term hereof, and so long as
no Event of Default has occurred, Bank shall lend to
Borrower an amount equal to the Borrowing Base; provided,
however, that in no event shall Bank be obligated to make
advances to Borrower under this Section 2.1 whenever the
Daily Balance exceeds, at any time, either the Borrowing
Base or the sum of THREE MILLION AND NO/100 dollars
------------------------
($3,000,000.00), such amount being referred to herein as
---------------
"Overadvance."
<PAGE>
Legal Effect. Except as specifically set forth in this Modification, all
------------
of the terms and conditions of the Agreement remain in full force and effect.
Integration. This is an integrated Modification and supersedes all prior
-----------
negotiations and agreements regarding the subject matter hereof. All amendments
hereto must be in writing and signed by the parties.
IN WITNESS WHEREOF, the parties have agreed as of the date first set forth
above.
HALL, KINION & ASSOCIATES, INC. COMERICA BANK-CALIFORNIA
By: /s/ Brenda Hall By: /s/ BRAD SMITH
---------------------------- ----------------------------
Brad Smith
Title: CEO Title: Assistant Vice President
------------------------- -------------------------
By: /s/ Keith Corbin
----------------------------
Title: CFO
-------------------------
<PAGE>
[LOGO OF COMERICA APPEARS HERE]
- --------------------------------------------------------------------------------
Comerica Bank-California
SECOND MODIFICATION TO LOAN & SECURITY AGREEMENT
------------------------------------------------
This Second Modification to Loan & Security Agreement (this "Modification")
is entered into by and between Hall, Kinion & Associates, Inc. ("Borrower"), a
California corporation, with its principal place of business at 5300 Stevens
Creek Boulevard, Suite 450, San Jose, California 95129 and Comerica
Bank-California ("Bank"), a California corporation, as of this 21st day of
October, 1996, at Bank's main office at 333 West Santa Clara Street, San Jose,
California 95113.
RECITALS
--------
A. Bank and Borrower have previously entered into that certain Loan
& Security Agreement (Accounts and Inventory) dated April 26, 1995, as modified
pursuant to that certain First Modification to Loan & Security Agreement dated
December 20, 1995 (collectively, the "Agreement"), pursuant to which Bank has
made available to Borrower a line of credit in an amount not to exceed Three
Million and 00/100 Dollars ($3,000,000) (together with all principal, interest,
other fees and costs, sometimes collectively referred to as the "Line of Credit"
or the "Credit").
B. Borrower and Bank have previously entered into that certain
Variable Rate-Installment Note in the principal amount of Five Hundred Thousand
and 00/100 Dollars ($500,000) (the "$500,000 Term Note"). Loans under the
$500,000 Term Note have not been disbursed by Bank to Borrower.
C. Brenda Hall and Todd Kinion have previously guarantied the
obligations of Borrower to Bank pursuant to those certain Guaranties dated April
26, 1995 (the "Guaranties").
D. Concurrently with the execution hereof, Borrower is entering into
that certain Asset Purchase Agreement by and among TeamAlliance Technology
Partners, L.P., a Delaware limited partnership, TeamAlliance Technology
Partners, Inc., a Delaware corporation, TeamVisions, Inc., a Delaware
corporation, certain designated Limited Liability Companies Richard Harmon,
Mordy Levine, and Frederick Lenz (sometimes collectively referred to hereinafter
as the "Sellers") (the "Purchase Agreement"), pursuant to which Borrower is
buying (the "Purchase") certain assets (the "Purchased Assets") from Sellers.
Among other things, the
1
<PAGE>
Purchase Agreement provides for certain payments to be made in the future by
Borrower to Sellers (the "Deferred Payments"), as set forth more completely in
the Purchase Agreement.
E. Bank and Borrower are concurrently herewith entering into that
certain Variable Rate-Installment Note (the "Term Note") in the original
principal amount of Four Million and 00/100 Dollars ($4,000,000) (together with
all principal, interest and other fees and costs, collectively, the "Term
Loan"). A portion of the Term Loan will be used to fund a portion of the payment
of the Purchase Price to Sellers. Borrower may, subject to the terms and
conditions of this Modification, borrow from Bank an additional sum of One
Million and 00/100 Dollars ($1,000,000) in term debt in addition to the Term
Loan.
F. The Term Note provides, among other things, for interest to
accrue on the principal balance thereof at an annual rate equal to one percent
(1%) in excess of the Bank's Base Rate.
G. Also concurrently herewith, the Line of Credit is being increased
to a maximum principal balance of Seven Million Dollars ($7,000,000) or the
Borrowing Base, whichever is less, as the term "Borrowing Base" is defined in
the Agreement.
H. The Line of Credit and the Term Loan are sometimes hereinafter
collectively referred to as the "Loans."
I. The Agreement, this Modification, the documents previously or
concurrently executed in connection with the Line of Credit, the Term Note and
the documents previously or concurrently executed in connection therewith, all
as hereafter modified, are sometimes hereinafter collectively referred to as the
"Loan Documents."
J. The Purchase and the Loans are sometimes hereinafter collectively
referred to as the "Transactions."
K. In connection with preparation for the consummation of the
Transactions, Borrower has caused the preparation of and has reviewed income and
cash flow projections for the fiscal years 1997 through 1999 of Borrower, which
are attached hereto as Exhibit "A" (the "Latest Projections").
------------------
L. Borrower has caused the preparation of and has reviewed a pro
forma summary balance sheet of Borrower as of September 30, 1996 (the "Fair
----
Value Balance Sheet"), giving effect to the consummation of the Transactions,
- -------------------
including the incurring by Borrower of the obligations to repay the indebtedness
consisting of the Credit Facility. The Fair Value Balance Sheet is attached
hereto as Exhibit "B."
2
<PAGE>
M. Borrower has requested, and Bank has agreed, to modify the
Agreement, to cancel the $500,000 Term Note and the Guaranties, and for Bank to
make available to Borrower the Term Loan and the Line of Credit, all as set
forth more completely herein.
AGREEMENT
---------
For good and valuable consideration, the parties agree as set forth
below:
1. Incorporation by Reference. The Agreement as modified hereby, the
--------------------------
Loan Documents as modified hereby and the Recitals are incorporated herein by
this reference as though set forth in full herein. All terms not defined in this
Modification shall have the meanings given in the Agreement, the Term Note or
other Loan Documents, as the case may be.
2. Conditions Precedent To Effectiveness of This Modification.
----------------------------------------------------------
Bank's obligations to make the initial advances hereunder and under the Loan
Documents are subject to the following conditions precedent:
2.1 Document Delivery. Bank shall have received the following
-----------------
documents: this Modification and the Schedules hereto, the Term Note, any UCC
Financing Statements requested by Bank, the Equipment Rider and other necessary
documents referenced herein, duly executed by the appropriate party.
2.2 Corporate Resolution. Bank shall have received a duly
--------------------
executed corporate resolution from the Board of Directors of Borrower
authorizing the execution of this Modification and all documents to be executed
concurrently herewith.
2.3 Accounts Receivable Audit. Bank shall have performed an
-------------------------
audit of the accounts receivable of Borrower with results satisfactory to Bank,
satisfaction of which condition is hereby acknowledged by Bank.
2.4 Certificates of Good Standing. Bank shall have received
-----------------------------
certificates of good standing for Borrower from the Secretaries of State of the
States of California, Utah, Washington, Oregon, Colorado, Texas, Illinois,
Florida, and North Carolina and any other states in which Borrower is doing
business or will be doing business immediately subsequent to the closing of the
Purchase.
2.5 First Priority Security Interest. Bank shall have
--------------------------------
received evidence satisfactory to Bank that it has a first priority security
interest in all personal property assets of Borrower, including, without
limitation, those assets located in the States of California, Utah, Washington,
Oregon, Colorado, Texas, Illinois, Florida, and North Carolina and any other
states in which Borrower is doing business or will be doing business immediately
subsequent to the closing of the Purchase, except that Bank acknowledges that it
shall not have a security interest
3
<PAGE>
in or lien on that certain real property commonly referred to as 1400 Empire
House, Park City, Utah (the "Utah Real Property").
2.6 UCC Terminations; Releases. Any liens against the
--------------------------
Purchased Assets shall have been released pursuant to UCC terminations or other
lien releases, in form satisfactory to Bank.
2.7 Purchase Criteria. The terms of the Purchase shall have
-----------------
met the terms of the Purchase Criteria, as defined in Section 13 hereof,
satisfaction of which conditions are hereby acknowledged by Bank as to the
Purchase.
2.8 Loan Fees. Payment to Bank by Borrower of the loan fees
---------
in the sum of Twenty-Five Thousand and 00/100 Dollars ($25,000) in connection
with the Specific Advance Term Facility and the sum of Seven Thousand and 00/100
Dollars ($7,000), of which the sum of Two Thousand Five Hundred Dollars ($2,500)
has previously been paid in 1996 to Bank under the Loan Agreement, leaving a
balance of Four Thousand Five Hundred and 00/100 Dollars ($4,500) to be paid at
the closing in connection with the Line of Credit (the foregoing loan fees are
sometimes hereinafter collectively referred to as the "Loan Fees").
2.9 Closing of the Purchase. The Purchase shall have closed
-----------------------
or will close concurrently with this Modification.
2.10 Payment of Attorneys' Fees and Legal and Other Costs.
----------------------------------------------------
Bank shall have received payment of the reasonable attorneys' fees and costs in
an amount not to exceed Ten Thousand Dollars ($10,000) incurred by Bank in
connection with the negotiation and preparation of this Modification and the
documents to be executed in connection herewith.
2.11 Other Items Reasonably Necessary. Bank shall have
--------------------------------
received such other and further items as Bank may reasonably require to carry
out the terms hereof and the Loan Documents as modified hereby.
To the extent that Bank has so agreed, the foregoing conditions
precedent that have not been completed by the closing of the Purchase will be
listed on Schedule A hereto, together with the dates by which such conditions
must be accomplished. Failure to comply with such items by such dates shall
constitute an Event of Default hereunder.
3. Specific Advance Facility. Bank agrees, on the terms set forth in
-------------------------
this Modification and the Agreement as modified by this Modification, to make
term loans to Borrower, including the Term Loan described in Recital E hereto
(collectively, the "Specific Advance Term Loans") from time to time on any
business day during the period from the date the Term Loan described in Recital
E is disbursed until the second anniversary of such disbursement in an aggregate
principal amount (subject to the Permitted Overformula described in Section
6.17 (k) of the Agreement as modified by this Modification) up to but not to
exceed
4
<PAGE>
Five Million and 00/100 Dollars ($5,000,000) (the "Specific Advance Facility").
Notwithstanding the foregoing, Borrower may terminate the Specific Advance
Facility at any time upon written notice to Bank and may prepay any Specific
Advance Term Loan in whole or in part without penalty or premium. Each Specific
Advance Term Loan shall be evidenced by a promissory note substantially in the
form of the Term Note. Each advance under the Specific Advance Facility shall be
amortized over a four (4) year period commencing on the date of such advance. In
addition, Borrower shall pay interest on the unpaid principal amount of each
Specific Advance Term Loan from the date of such Loan until the maturity thereof
at a rate per annum equal to the Base Rate plus one percent (1%).
4. Representations and Warranties Re: States In Which Borrower Does
----------------------------------------------------------------
Business Or Owns Assets. The following states are the only states in which
- -----------------------
Borrower is or shall be doing business or owns or will own assets immediately
subsequent to the closing of the Purchase: (a) California; (b) Utah; (c)
Washington; (d) Oregon; (e) Colorado; (f) Texas; (g) Illinois; (h) Florida; (i)
New York; and (j) North Carolina, and Borrower shall maintain such assets only
at the addresses listed on Schedule B hereto unless Borrower shall have given
Bank notice of its intent to maintain addresses at different addresses in such
states.
5. Modification of Agreement. The Agreement shall be modified by
-------------------------
replacing certain sections of the Agreement, as referenced below, with the
sections as set forth below.
(a) Section 1.6 "Cash Flow" as used in this Agreement means
for any applicable period of determination,
the Net Income (after deduction for income
taxes and other taxes of such person
determined by reference to income or profits
of such person) for such period, plus, to
the extent deducted in computation of such
Net Income, the amount of depreciation and
amortization expense and the amount of
deferred tax income taxes during such
period, all as determined in accordance with
GAAP. The applicable period of determination
will be Borrower's fiscal year, beginning
with the period from January 1 to December
31.
(b) Section 2.1 Upon the request of Borrower, made at any
time and from time to time during the term
hereof, and so long as no breach or Event of
Default has occurred, Bank shall lend to
Borrower an amount equal to the Borrowing
Base; provided, however, that Bank shall not
be obligated to make advances to Borrower
under this Section 2.1 whenever the Daily
Balance exceeds, at any time, either the
Borrowing Base or the sum of Seven Million
and 00/100
5
<PAGE>
($7,000,000), such excess amount being
referred to hereinafter as the
"Overadvance."
(c) Section 2.2 Except as hereinbelow provided, the Credit
shall bear interest, on the Daily Balance
owing, at a rate of one half percent (.50%)
percentage points per annum above the Base
Rate (the "Rate"). The Credit shall bear
interest, from and after the occurrence of
an Event of Default and without constituting
a waiver of any such Event of Default, on
the Daily Balance owing, at a rate three (3)
percentage points per annum above the Rate.
All interest chargeable under this Agreement
that is based upon a per annum calculation
shall be computed on the basis of a three
hundred sixty (360) day year for actual days
elapsed.
The Base Rate as of the date of this
Agreement is eight and one quarter percent
(8.25%) per annum. In the event that the
Base Rate announced is, from time to time
hereafter, changed, adjustment in the Rate
shall be made and based on the Base Rate in
effect on the date of such change. The Rate,
as adjusted, shall apply to the Credit until
the Base Rate is adjusted again. The minimum
interest payable by the Borrower under this
Agreement shall in no event be less than N/A
---
per month. All interest payable by Borrower
under the Credit shall be due and payable on
the fifteenth (15th) day of each calendar
month during the term of this Agreement and
Bank may at its option, elect to treat such
interest and any and all Bank Expenses as
advances under the Credit, which amounts
shall thereupon constitute Obligations and
shall thereafter accrue interest at the rate
applicable to the Credit under the terms of
the Agreement.
(d) Section 6.3(b) To the extent Borrower seeks to have an
account treated as an eligible account for
purposes of this Agreement, all such
accounts are and will, at all times
pertinent hereto, be bona fide existing
Obligations created by the sale and delivery
of merchandise or the rendition of services
to account debtors in the ordinary course of
business, free of liens, claims,
encumbrances and security interests (except
as held by Bank and except as may be
consented to, in writing, by Bank) and are
unconditionally owed to Borrower without
defenses, disputes, offsets, counterclaims,
rights of return or cancellation, and
Borrower shall have received no notice
6
<PAGE>
of actual or imminent bankruptcy or insolvency of such
account debtor.
(e) Section 6.3(c) To the extent Borrower seeks to have an account created
as an eligible account for purposes of this Agreement,
all services must have been performed by Borrower for
such account relating to a particular invoice.
(f) Section 6.6(g) Acquire all or substantially all of the stock or assets
of any other business organization without Bank's
consent, which consent shall not be unreasonably
withheld; provided, however, that no such consent shall
be required so long as (a) Borrower is not in breach of
any terms and conditions of either (i) this
Modification, including, without limitation, the
financial covenants contained herein, as this
Modification may hereafter be modified; or (ii) the
Loan Documents, including, without limitation, the
financial covenants, as the Loan Documents are modified
hereby or hereafter; and (b) all of the Purchase
Criteria have been met if Bank is providing a loan to
Borrower to fund such purchase.
(g) Section 6.6(i) Make any investment in securities of any person,
association, firm, entity, or corporation other than
the securities of the United States of America, and
those securities purchased in accordance with
Borrower's Cash Management Guidelines as provided to
Bank concurrently with the execution of the Second
Modification to Loan & Security Agreement (Accounts and
Inventory) dated October 21, 1996 (the "Modification").
(h) Section 6.6(o) (a) Sell, lease, transfer or otherwise dispose of
properties and assets having an aggregate book value of
more than Two Hundred and Fifty Thousand and 00/100
Dollars ($250,000) per year (whether in one transaction
or in a series of transactions) except as to the sale
of inventory in the ordinary course of business; (b)
change its name, consolidate with or merge into any
other corporation, permit another corporation to merge
into it, acquire all or substantially all the
properties or assets of any other Person except as
permitted by Section 6.6(g), enter into any
reorganization or recapitalization or reclassify its
capital stock; or (c) enter into any sale-leaseback
transaction.
7
<PAGE>
(i) Section 6.16(b) Borrower shall deliver to Bank within thirty (30) days
after the end of each month, a company prepared balance
sheet and profit and loss statement covering Borrower's
operations and deliver to Bank within ninety (90) days
after the end of each of Borrower's fiscal years a CPA
audited financial statement of the financial condition
of the Borrower for each such fiscal year, including
but not limited to, a balance sheet and profit and loss
statement and any other report requested by Bank
relating to the Collateral and the financial condition
of Borrower, and a certificate signed by an authorized
employee of Borrower to the effect that all reports,
statements, computer disk or tape files, computer
printouts, computer runs, or other computer-prepared
information of any kind or nature relating to the
foregoing or documents delivered or caused to be
delivered to Bank under this subparagraph are complete,
correct and thoroughly present the financial condition
of Borrower and that there exists on the date of
delivery to Bank no condition or event which
constitutes a breach or Event of Default under this
Agreement.
(j) Section 6.16(c) X Borrowing Base Certificate on a monthly basis.
---
(k) Section 6.17(b) Tangible Effective Net Worth in an amount not less than
a negative One Million and 00/100 Dollars
($1,000,000.00), to be measured monthly. The Tangible
Net Worth covenant shall be increased by an amount
equal to fifty percent (50%) of Borrower's net profit
after taxes on a semi-annual basis effective December
31, 1996.
(l) Section 6.17(c) A ratio of Current Assets to Current Liabilities of
greater than 1.15:1.00, to be measured monthly.
(m) Section 6.17(g) Net Income after taxes to be measured at Borrower's
fiscal quarter end and fiscal year end.
(n) Section 6.17(i) Borrower to maintain a ratio of net profits plus
depreciation and amortization (to be annualized)
divided by the current portion of all long term debt
(including the current Deferred Payment) of greater
than 2.0:1.00, to be measured monthly.
8
<PAGE>
(o) Section 6.17(j) In addition to any other payments to be made hereunder
or under the Loan Documents as modified hereby,
Borrower shall annually pay to Bank, to be applied to
reduce the principal balance of long term debt owed to
Bank, an amount equal to fifty percent (50%) of the net
profit after taxes; less the sum of (a) the current
portion of Bank debt and (b) the current portion of the
Deferred Payments (the "Cash Flow Recapture." The Cash
Flow Recapture for any one year shall not exceed Seven
Hundred Fifty Thousand and 00/100 Dollars
($750,000.00).
(p) Section 6.17(k) Notwithstanding the terms and conditions of the
Agreement and this Modification, the combined balance
of the Line of Credit, the Term Loan plus any other
term loan from Bank shall not exceed a sum that is Two
Million Dollars ($2,000,000) in excess of Borrower's
Borrowing Base (such excess amount is sometimes
hereinafter referred to as the "Permitted
Overformula"). The Permitted Overformula shall
permanently be reduced on a quarterly basis by the sum
of Three Hundred Thirty-Three Thousand and 33/100
Dollars ($333,333.33), with such permanent reductions
to be measured at each of Borrower's fiscal quarter
end. The Permitted Overformula shall be permanently
reduced to a zero balance by no later than eighteen
(18) months from the date of the first disbursement by
Bank to Borrower under the Term Note.
6. Maturity Date. Subject to Section 7 of this Modification and Section 3.1
-------------
of the Agreement, the obligations owing under the Line of Credit are due upon
demand by Bank, whether or not a breach, default or an Event of Default
thereunder or under any of the other Loan Documents shall have occurred as of
the date of such demand.
7. Notice of Demand In Event of Financial Covenant Violations; No Obligation
-------------------------------------------------------------------------
To Advance. Notwithstanding anything contained in the Agreement to the contrary,
- ----------
in the event Bank wishes to make demand for payment of the Loans in full based
upon a violation by Borrower of a financial covenant in the Loan Documents, as
modified hereby or hereafter, Bank agrees to give Borrower thirty (30) days'
notice prior to making demand for payment of the Loans, provided that Borrower
is not otherwise in breach or default under the Loan Documents as modified
hereby or hereafter or becomes in breach or default thereof, in which case no
such notice shall be required. Notwithstanding the foregoing notice requirement,
there shall be no obligation on the part of Bank to make further advances to
Borrower upon the breach of a financial covenant. Nothing in this Section 6
shall modify or alter the obligation of Borrower to make regularly scheduled
payments on the Loans when due as provided in the Loan Documents.
9
<PAGE>
8. Compensating Balances. Bank acknowledges and agrees that the amounts of
---------------------
the Loan Fees charged by Bank has been calculated based upon the Borrower
maintaining on deposit with Bank certain compensating balances during certain
time periods. In that regard, as a condition of the Loans, Borrower has agreed
that commencing as of June 30, 1997, Borrower shall maintain compensating
balances on deposit with Bank either in money market accounts or demand deposit
accounts in a combined amount at all times equal to Three Million and 00/100
Dollars ($3,000,000) for the period of time commencing on June 30, 1997 and
terminating on June 30, 1998. Failure to maintain such compensating balances on
deposit shall not constitute a breach or an event of default; provided, however,
that if Borrower fails to maintain average deposits of Three Million and 00/100
Dollars ($3,000,000) during any fiscal quarter during the period of time from
June 30, 1997 to June 30, 1998, then Borrower shall pay a fee to Bank in the
amount of Five Thousand and 00/100 Dollars ($5,000) per quarter (the "Settlement
Fee") commencing on the quarter ending September 30, 1997. Failure by Borrower
to timely pay the quarterly Settlement Fee to Bank shall constitute a breach or
an Event of Default under this Modification and the other Loan Documents.
9. First Priority Security Interest. Except as provided with respect to the
--------------------------------
Utah Real Property, the security interest of Bank in the personal property
assets of Borrower shall at all times be a first priority and duly perfected
security interest.
10. Payroll. Borrower agrees that it shall at all times pay its employees all
-------
sums due to them and all payroll taxes and related expenses on a current basis,
and shall, upon reasonable request by Bank, provide Bank with evidence thereof.
11. No Reliance Upon Bank by Borrower. Borrower acknowledges and agrees that
---------------------------------
it is entering into the Purchase Agreement and effecting the Purchase of the
Purchased Assets based on its own evaluation and examination of the Purchased
Assets and its own business judgment, and not based on any advice or
recommendation of Bank.
12. Solvency. Borrower represents and warrants that:
--------
12.1 Latest Projections; Assumptions. In connection with the preparation
-------------------------------
of the Latest Projections, Borrower has relied upon (i) historical financial and
other information; and (ii) information with respect to sales, costs and other
data obtained from Borrower's officers and other supervisory personnel who are
directly responsible for the various operations involved. The assumptions upon
which the Latest Projections are based, which are deemed by Borrower to be
reasonable, are stated therein, which assumptions and any forecast by necessity
involve uncertainty and approximation. Based thereon, Borrower reasonably
believes that the Latest Projections, taken as a whole, provide reasonably
attainable estimates of future performance, subject, as stated above, to
inherent uncertainties and approximations;
12.2 Review of Latest Projections; No Material Change. The Latest
------------------------------------------------
Projections have been reviewed by members of Borrower's senior management,
including without limitation,
10
<PAGE>
the chief financial officer of Borrower, for reasonableness. The Latest
Projections give effect to the consummation of the Transactions, including the
incurrence by Borrower of the obligations to repay the indebtedness consisting
of the Loans. The Latest Projections were prepared on the basis of information
available as of September 30, 1996. Borrower knows of no material fact which has
occurred since that date which would lead Borrower to believe that the Latest
Projections, taken as a whole, are not reasonably attainable, subject to the
uncertainties and approximations inherent in any projections;
12.3 Preparation of Fair Value Balance Sheet. The Fair Value Balance Sheet
---------------------------------------
has been prepared in a manner which Borrower believes reflects the fair value of
the assets of Borrower and the amount that will be required to pay Borrower's
probable liability on all of its obligations, contingent or otherwise, as they
become absolute and matured. Borrower understands "fair value" of assets to mean
the amount which could be realized within a reasonable time, either through the
collection or sale of such assets at their regular market value, conceiving of
the latter as the amount which could be obtained for the property in question
within such period by a capable and diligent businessperson from an interested
buyer who is willing to purchase under ordinary selling conditions. Borrower has
consulted counsel in connection with ascertaining and evaluating Borrower's
contingent liabilities (such as litigation and guaranties).
12.4 Solvency. Borrower is now and shall at all times, including after the
--------
consummation of the Transactions, be solvent.
12.5 No Intent to Hinder; Delay or Defraud Creditors. Borrower has not
-----------------------------------------------
entered in the Transactions or made any transfer or incurred any obligations
hereunder or thereunder, with the actual intent to hinder, delay or defraud
either the present or future creditors of Borrower.
13. Reliance by Bank. Borrower understands that Bank is relying upon the
----------------
foregoing representations and warranties regarding solvency and no fraudulent
conveyance in connection with the consummation of the Loans contemplated by the
Agreement.
14. Purchase Criteria. Any acquisition of assets of a third party (the
-----------------
"Target") by Borrower made with the proceeds of any loan from Bank, whether the
Purchase or any other purchase shall meet the following criteria (the "Purchase
Criteria"):
(a) the purchase price does not exceed seven (7) times the Target's most
recent twelve (12) month normalized earnings before interest, taxes,
depreciation and amortization ("EBITDA") (as used herein, "normalized" means
that excess officers' compensation shall have been taken into account);
(b) the aggregate of the Loans do not exceed four (4) times the most
recent twelve (12) month combined normalized EBITDA of Borrower and the Target;
11
<PAGE>
(c) the Target shall have been profitable during its most recent two
(2) fiscal years;
(d) any assets being purchased shall be free and clear of liens;
(e) if the proposed purchase price exceeds the sum of Five Million and
00/100 Dollars ($5,000,000), there shall be a minimum of twenty-five percent
(25%) of the purchase price that will be deferred and not paid at the closing,
provided that as part of this Modification, Borrower acknowledges that Borrower
shall only make a payment to such recipient of a deferred payment if such
deferred payment would not cause a breach of any financial covenant or other
term of this Modification or the Loan Documents, as modified hereby, as this
Modification or the Loan Documents may be further modified hereafter or until
such time as such breach of financial covenant or other term has been cured.
Borrower shall further acknowledge to Bank that it has given notice of section
13(e) to any recipient of a deferred payment; and
(f) Bank shall have reviewed and found satisfactory the CPA reviewed
or audited financial statements of the Target.
15. Cancellation of $500.000 Term Note. The $500,000 Term Note is being
----------------------------------
canceled concurrently with the execution hereof, and Bank shall, concurrently
with the execution hereof, deliver to Borrower the original of the $500,000 Term
Note, stamped "Canceled."
16. Cancellation of the Guaranties. The Guaranties are being canceled
------------------------------
concurrently with the execution hereof, and Bank shall concurrently with the
execution hereof, deliver to Guarantors their respective Guaranties, each
stamped with the notation "Canceled."
17. Payment of Attorneys' Fees and Costs. Borrower shall pay to Bank the
------------------------------------
reasonable attorneys' fees and costs incurred by Bank in connection with the
negotiation and preparation of this Agreement and the documents executed in
connection herewith. Borrower shall also pay such additional reasonable
attorneys' fees and costs as Bank may incur in connection with the Loans and the
Loan Documents.
18. Survival of Warranties and Representations. The warranties and
------------------------------------------
representations set forth herein shall survive the execution of this
Modification and the making of the Loans.
19. Survival of Terms and Conditions. The terms and conditions of this
--------------------------------
Modification and the Agreement shall survive the repayment of the Line of Credit
and shall govern the Term Loan to the extent applicable thereto, and vice versa.
20. Cross Defaults. A default under any of the Loan Documents, as modified
--------------
hereby any documents executed in connection herewith or hereafter and/or this
Modification shall be a default under each of the Loan Documents, as modified
hereby, any documents executed herewith or hereafter and this Modification, and
vice versa.
12
<PAGE>
21. Cross-Collateral. All collateral now existing or hereafter granted to
----------------
secure any of the Loans shall also be collateral for all other Loans, unless
Bank provides otherwise in writing, except that no real property shall be Bank's
collateral without Bank's prior written consent.
22. Legal Effect. Except as specifically set forth in this Modification,
------------
all of the terms and conditions of the Agreement and the Loan Documents, both as
modified hereby, shall remain in full force and effect.
23. Confidentiality. Borrower acknowledges that Bank may provide
---------------
information relating to this Modification and/or the Loan Documents as modified
hereby and/or Borrower to Bank's parent, affiliates, subsidiaries and service
providers in the ordinary course of business, provided that in handling any
confidential information of Borrower received by Bank pursuant to any of the
Loan Documents as modified hereby, Bank and any such parties shall (and Bank
shall cause any such parties to) exercise such degree of care as is required to
maintain such information as confidential that Bank exercises with respect to
its own proprietary information.
24. Accounting Terms. Unless otherwise provided in this Modification or the
----------------
Agreement as modified by this Modification, all calculations with respect to
accounting or financial matters shall be computed in accordance with GAAP,
consistently applied, and accounting terms used and not otherwise defined herein
shall have the meaning determined by GAAP.
25. Integration. This Modification is an integrated agreement and
-----------
supersedes all prior negotiations and agreements regarding the subject matter
hereof. All amendments hereto must be in writing and signed by the parties
hereto.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have agreed to the terms of this
Second Modification To Loan & Security Agreement as of the date first set forth
above.
COMERICA BANK-CALIFORNIA
By: /s/ BRADFORD SMITH
-------------------------------
Bradford Smith
Title: Vice President
HALL, KINION & ASSOCIATES, INC.
By: /s/ BRENDA HALL
-------------------------------
Title: CEO
----------------------------
By: /s/ PAUL H. BARTLETT
-------------------------------
Title: President
----------------------------
14
<PAGE>
SCHEDULE A TO LOAN AND SECURITY AGREEMENT
1. Document Delivery. Bank shall have received the following documents:
-----------------
this Modification and the Schedules hereto, the Term Note, any UCC Financing
Statements requested by Bank, the Equipment Rider and other necessary documents
referenced herein, duly executed by the appropriate party.
2. Corporate Resolution. Bank shall have received a duly executed corporate
--------------------
resolution from the Board of Directors of Borrower authorizing the execution of
this Modification and all documents to be executed concurrently herewith.
3. Certificates of Good Standing. Bank shall have received certificates of
-----------------------------
good standing for Borrower from the Secretaries of State of the States of
California, Utah, Washington, Oregon, Colorado, Texas, Illinois, Arizona,
Florida, and North Carolina and any other states in which Borrower is doing
business or will be doing business immediately subsequent to the closing of the
Purchase.
4. First Priority Security Interest. Bank shall have received evidence
--------------------------------
satisfactory to Bank that it has a first priority security interest in all
personal property assets of Borrower, including, without limitation, those
assets located in the States of California, Utah, Washington, Oregon, Colorado,
Texas, Illinois, Arizona, Florida, and North Carolina and any other states in
which Borrower is doing business or will be doing business immediately
subsequent to the closing of the Purchase, except that Bank acknowledges that it
shall not have a security interest in or lien on that certain real property
commonly referred to as 1400 Empire House, Park City, Utah (the "Utah Real
Property").
5. UCC Terminations; Releases. Any liens against the Purchased Assets shall
--------------------------
have been released pursuant to UCC terminations or other lien releases, in form
satisfactory to Bank.
6. Purchase Criteria. The terms of the Purchase shall have met the terms of
-----------------
the Purchase Criteria, as defined in Section 13 hereof, satisfaction of which
conditions are hereby acknowledged by Bank as to the Purchase.
7. Loan Fees. Payment to Bank by Borrower of the loan fees in the sum of
---------
Twenty-Five Thousand and 00/100 Dollars ($25,000) in connection with the
Specific Advance Term Facility and the sum of Seven Thousand and 00/100 Dollars
($7,000), of which the sum of Two Thousand Five Hundred Dollars ($2,500) has
previously been paid in 1996 to Bank under the Loan Agreement, leaving a balance
of Four Thousand Five Hundred and 00/100 Dollars ($4,500) to be paid at the
closing in connection with the Line of Credit (the foregoing loan fees are
sometimes hereinafter collectively referred to as the "Loan Fees").
8. Closing of the Purchase. The Purchase shall have closed or will close
-----------------------
concurrently with this Modification.
15
<PAGE>
($4,500) to be paid at the closing in connection with the Line of Credit (the
foregoing loan fees are sometimes hereinafter collectively referred to as the
"Loan Fees").
9. Closing of the Purchase. The Purchase shall have closed or will close
-----------------------
concurrently with this Modification.
10. Payment of Attorneys' Fees and Legal and Other Costs. Bank shall have
----------------------------------------------------
received payment of the reasonable attorneys' fees and costs in an amount not to
exceed Ten Thousand Dollars ($10,000) incurred by Bank in connection with the
negotiation and preparation of this Modification and the documents to be
executed in connection herewith.
11. Other Items Reasonably Necessary. Bank shall have received such other
--------------------------------
and further items as Bank may reasonably require to carry out the terms hereof
and the Loan Documents as modified hereby.
16
<PAGE>
SCHEDULE B TO SECOND MODIFICATION
TO LOAN SECURITY AGREEMENT
CALIFORNIA: NORTH CAROLINA:
- ---------- --------------
CORPORATE HEADQUARTERS RESEARCH TRIANGLE PARK
5300 Stevens Creek Blvd., Suite 450 2525 Meridian Parkway, Suite 280
San Jose, CA 95129 Durham, NC 27713
SAN JOSE WASHINGTON:
5300 Stevens Creek Blvd., Suite 320 ----------
San Jose, CA 95129
SEATTLE
CAPITOLA 3005 112th Ave., N.E., Suite 102
820 Bay Ave., Suite 109 Bellevue, WA 98004
Capitola, CA 95010
OREGON:
FREMONT-MILPITAS -------
1900 McCarthy Blvd., Suite 420
Milpitas, CA 95035 PORTLAND
8705 S.W. Nimbus, Suite 270
SOUTH VALLEY, SAN JOSE Beaverton, OR 97008
3150 Almaden Expwy., Suite 202
San Jose, CA 95118 COLORADO:
--------
MOUNTAIN VIEW
1804 N. Shoreline Blvd., Suite 120 DENVER
Mountain View, CA 94043 5613 D T C Parkway, Suite 560
Englewood, CO 80111
UTAH:
- ---- 4600 South Ulster Street, Suite 700
Denver, CO 80237
SALT LAKE CITY
7090 S. Union Park Ave., Suite 500 TEXAS:
Midvale, UT 84047 -----
One Utah Center [VALID?] AUSTIN
201 South Main, Suite 900 Westech 360
Salt Lake City, UT 84111 8911 Capital Of Texas Highway,
Suite 3310 Austin, TX 78759-7267
HOUSTON
4265 San Felipe, Suite 1100
Houston, TX 77027
17
<PAGE>
ARIZONA:
- -------
PHOENIX
1201 S. Alma School Road, Suite 7550
Mesa, AZ 85210
ILLINOIS:
- --------
CHICAGO
203 N. LaSalle Street, Suite 2100
Chicago, IL 60601
NEW YORK:
- --------
NEW YORK
590 5th Ave., 18th Floor
New York, NY 10036
FLORIDA:
- -------
ORLANDO
101 Southhall Lane, Suite 400
Maitland, FL 32751
TAMPA
550 N. Reo St., Suite 300
Tampa, FL 33609-1013
18
<PAGE>
[LETTERHEAD OF COMERICA APPEARS HERE]
VARIABLE RATE-INSTALLMENT NOTE
<TABLE>
<CAPTION>
======================================================================================================
AMOUNT NOTE DATE MATURITY DATE TAX IDENTIFICATION #
<S> <C> <C> <C>
$4,000,000.00 November 4, 1996 November 15,1998 77-0337705
======================================================================================================
</TABLE>
For Value Received the undersigned promise(s) to pay to the order of Comerica
Bank-California ("Bank") at any office of Bank in the State of California, Four
Million and 00/100 Dollars (U.S.) in installments of $83,333.33 each [_]
INCLUSIVE OF [X] PLUS interest on the unpaid balance from the date of
disbursement at a per annum rate equal to the Bank's rate from time to time in
effect plus 1.000% per annum until maturity, whether by acceleration or
otherwise, or until Default, as later defined, and after that at a default rate
equal to the rate of interest otherwise prevailing under this Note plus 3% per
annum (but in no event in excess of the maximum rate permitted by law). Interest
shall be calculated for the actual number of days the principal is outstanding
on the basis of a 360 day year if this Note evidences a business or commercial
loan or a 365 day year if a consumer loan. Bank's "base rate" is that annual
rate of interest so designated by Bank and which is changed by Bank from time to
time. Interest rate charges will be effective for interest computation purposes
as and when Bank's base rate changes. Installments of principal and accrued
interest due under this Note shall be payable on the 15th day of each month,
commencing November 15, 1996, and the entire remaining unpaid balance of
principal and accrued interest shall be payable on the Maturity Date set forth
above. If the frequency of principal and interest installments is not otherwise
specified, installments of principal and interest due under this Note shall be
payable monthly on the first day of each month.
In the event the periodic installments set forth above are inclusive of
interest, these installments are calculated at an assumed fixed interest rate
and an assumed amortization term. The amortization term ends on the Maturity
Date. In the event this Note evidences a business or commercial loan and Bank's
base rate changes, Bank, at its sole option, may from time to time recalculate
the periodic installment amount so that the remaining periodic installments will
fully amortize the remaining loan balance within the remaining amortization term
in equal installments at the interest rate then being charged under this Note.
THE UNDERSIGNED AGREE(S) TO PAY THE PERIODIC INSTALLMENTS AS THEY MAY BE
RECALCULATED BY Bank, AT Bank'S SOLE OPTION, FROM TIME TO TIME AND
ACKNOWLEDGE(S) THAT A RECALCULATION SHALL NOT AFFECT THE MATURITY DATE OR THE
OTHER TERMS AND PROVISIONS OF THIS NOTE. If this Note or any installment under
this Note shall become payable on a day other than a day on which Bank is open
for business, this payment may be extended to the next succeeding business day
and interest shall be payable at the rate specified in this Note during this
extension. Any payments of principal in excess of the installment payments
required under this Note need not be accepted by Bank (except as required under
applicable law), but if accepted shall apply to the installments last falling
due. A late installment charge equal to 5% of each late installment may be
charged on any installment payment not received by Bank within 10 calendar days
after the installment due date, but acceptance of payment of this charge shall
not waive any default under this Note.
This Note and any other Indebtedness and liabilities of any kind of the
undersigned (or any of them) to Bank, and any and all modifications, renewals or
extensions of it, whether joint or several contingent or absolute, now existing
or later arising, and however evidenced (collectively "Indebtedness") are
secured by and Bank is granted a security interest in all items deposited in any
account of any of the undersigned with Bank and by all proceeds of these items
(cash or otherwise), all account balances of any of the undersigned from time to
time with Bank, by all property of any of the undersigned from time to time in
the possession of Bank and by any other collateral, rights and properties
described in each and every deed of trust, mortgage, security agreement, pledge,
assignment and other agreement which has been, or will at any time(s) later be,
executed by any (or all) of the undersigned to or for the benefit of Bank
(collectively "Collateral"). Notwithstanding the above, (i) to the extent that
any portion of the Indebtedness is a consumer loan, that portion shall not be
secured by any deed of trust or mortgage on or other security interest in
1
<PAGE>
any of the undersigned's principal dwelling or in any of the undersigned's real
property which is not a purchase money security interest as to that portion,
unless expressly provided to the contrary in another place, or (ii) if the
undersigned (or any of them) has (have) given or give(s) Bank a deed of trust or
mortgage covering real property, that deed of trust or mortgage shall not secure
this Note or any other Indebtedness of the undersigned (or any of them), unless
expressly provided to the contrary in another place.
Except as otherwise provided in that Second Modification of Loan & Security
Agreement dated as of November 4, 1996 between Borrower and Bank (the
"Modification") and the Loan & Security Agreement (Accounts and Inventory) dated
as of April 26, 1995 (the "Agreement") as modified by the Modification, if the
undersigned (or any of them) or any guarantor under a guaranty of all or part of
the Indebtedness ("guarantor") (a) fail(s) to pay this Note or any of the
Indebtedness when due, by maturity, acceleration or otherwise, or fail(s) to pay
any Indebtedness owing on a demand basis upon demand; or (b) fail(s) to comply
with any of the terms or provisions of any agreement between the undersigned (or
any of them) or any guarantor and Bank; or (c) becomes insolvent or the subject
of a voluntary or involuntary proceeding in bankruptcy, or a reorganization,
arrangement or creditor composition proceeding, (if a business entity) cease(s)
doing business as a going concern, (if a natural person) die(s) or become(s)
incompetent, (if a partnership) dissolve(s) or any general partner of it dies,
becomes incompetent or becomes the subject of a bankruptcy proceeding or (if a
corporation or a limited liability company) is the subject of a dissolution,
merger or consolidation; or (d) if any warranty or representation made by any of
the undersigned or any guarantor in connection with this Note or any of the
Indebtedness shall be discovered to be untrue or incomplete; or (e) if there is
any termination, notice of termination, or breach of any guaranty, pledge,
collateral assignment or subordination agreement relating to all or any part of
the Indebtedness; or (f) if there is any failure by any of the undersigned or
any guarantor to pay when due any of its Indebtedness (other than to Bank) or in
the observance or performance of any term, covenant or condition in any document
evidencing, securing or relating to such Indebtedness; or (g) if Bank deems
itself insecure, believing that the prospect of payment of this Note or any of
the Indebtedness is impaired or shall fear deterioration, removal or waste of
any of the Collateral; or (h) if there is filed or issued a levy or writ of
attachment or garnishment or other like judicial process upon the undersigned
(or any of them) or any guarantor or any of the Collateral, including without
limit, any accounts of the undersigned (or any of them) or any guarantor with
Bank, then Bank, upon the occurrence of any of these events (each a "Default"),
may at its option and without prior notice to the undersigned (or any of them),
declare any or all of the Indebtedness to be immediately due and payable
(notwithstanding any provisions contained in the evidence thereof to the
contrary), sell or liquidate all or any portion of the Collateral, set off
against the Indebtedness any amounts owing by Bank to the undersigned (or any of
them), charge interest at the default rate provided in the document evidencing
the relevant Indebtedness and exercise any one or more of the rights and
remedies granted to Bank by any agreement with the undersigned (or any of them)
or given to it under applicable law. In addition, if this Note is secured by a
deed of trust or mortgage covering real property, then the trustor or mortgagor
shall not mortgage or pledge the mortgaged premises as security for any other
Indebtedness or obligations. This Note, together with all other Indebtedness
secured by said deed of trust or mortgage, shall become due and payable
immediately, without notice, at the option of Bank, (a) if said trustor or
mortgagor shall mortgage or pledge the mortgaged premises for any other
Indebtedness or obligations or shall convey, assign or transfer the mortgaged
premises by deed, installment sale contract or other instrument, or (b) if the
title to the mortgaged premises shall become vested in any other person or party
in any manner whatsoever, or (c) if there is any disposition (through one or
more transactions) of legal or beneficial title to a controlling interest of
said trustor or mortgagor. All payments under this Note shall be in immediately
available United States funds, without setoff or counterclaim.
If this Note is signed by two or more parties (whether by all as makers or by
one or more as an accommodation party or otherwise), the obligations and
undertakings under this Note shall be that of all and any two or more jointly
and also of each severally. This Note shall bind the undersigned, and the
undersigned's respective heirs, personal representatives, successors and
assigns.
The undersigned waive(s) presentment, demand, protest, notice of dishonor,
notice of demand or intent to demand, notice of acceleration or intent to
accelerate, and all other notices and agree(s) that no extension or indulgence
to the undersigned (or any of them) or release, substitution or nonenforcement
of any security, or release or substitution of any of the undersigned, any
guarantor or any other party, whether with or without notice, shall affect the
obligations of any of the undersigned. The undersigned waive(s) all defenses or
right to discharge available under Section 3-
2
<PAGE>
605 of the California Uniform Commercial Code and waive(s) all other suretyship
defenses or right to discharge. The undersigned agree(s) that Bank has the right
to sell, assign, or grant participations, or any interest, in any or all of the
Indebtedness, and that, in connection with this right, but without limiting its
ability to make other disclosures to the full extent allowable, Bank may
disclose all documents and information which Bank now or later has relating to
the undersigned or the Indebtedness. The undersigned agree(s) that Bank may
provide information relating to the Note or to the undersigned to Bank's parent,
affiliates, subsidiaries and service providers.
The undersigned agree(s) to reimburse the holder or owner of this Note for any
and all costs and expenses (including without limit, court costs, legal expenses
and reasonable attorneys' fees, whether inside or outside counsel is used,
whether or not suit is instituted and, if suit is instituted, whether at the
trial court level, appellate level, in a bankruptcy, probate or administrative
proceeding or otherwise) incurred in collecting or attempting to collect this
Note or incurred in any other matter or proceeding relating to this Note.
The undersigned acknowledge(s) and agree(s) that other than as set forth in the
Modification and the Agreement, which Modification and Agreement as modified by
the Agreement shall govern in the event of an explicit inconsistency with any
term hereof, there are no contrary agreements, oral or written, establishing a
term of this Note.
The undersigned acknowledge(s) and agree(s) that the terms and conditions of
this Note may not be amended, waived or modified except in a writing signed by
an officer of Bank expressly stating that the writing constitutes an amendment,
waiver of modification of the terms of this Note. As used in this Note, the word
"undersigned" means, individually and collectively, each maker, accommodation
party, endorser and other party signing this Note in a similar capacity. If any
provision of this Note is unenforceable in whole or in part for any reason, the
remaining provisions shall continue to be effective.
THIS NOTE IS MADE IN THE STATE OF CALIFORNIA AND SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA,
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
THE MAXIMUM INTEREST RATE SHALL NOT EXCEED THE HIGHEST APPLICABLE USURY CEILING.
THE UNDERSIGNED AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED, EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
This Note is subject to the terms and conditions of the Modification and the
Agreement, as modified by the Modification.
For Corporations, Partnerships, Trust, or Estates
<TABLE>
<S> <C> <C>
HALL, KINION & ASSOCIATES. INC. By: /s/ BRENDA HALL Its: CEO
- ------------------------------- --------------------------- ---------------
OBLIGOR NAME TYPED/PRINTED SIGNATURE OF BRENDA HALL TITLE
5300 Stevens Creek Blvd. By: /s/ PAUL. H. BARTLETT By: President
- ------------------------ --------------------------- ---------------
STREET ADDRESS SIGNATURE OF PAUL H. BARTLETT TITLE
San Jose By: By:
- ------------------------ --------------------------- ---------------
CITY SIGNATURE OF TITLE
CA 95112 By: By:
- ------------------------ --------------------------- ---------------
STATE ZIP CODE SIGNATURE OF TITLE
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
For Individuals or Sole
Proprietorships
Name(s) of Obligor(s) Signature(s) of
(Type or Print): Obligor(s):
<S> <C> <C>
----------------------------------------- -----------------------------
- ------------------------------------------------ ----------------------------------------- -----------------------------
STREET ADDRESS
- ------------------------------------------------ ----------------------------------------- -----------------------------
CITY
- ------------------------------------------------ ----------------------------------------- -----------------------------
STATE ZIP CODE
</TABLE>
<TABLE>
<CAPTION>
============================================================================================================================
For Bank Use Only CCAR #
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loan Officer Initials Loan Group Name Obligor(s) Name
- ----------------------------------------------------------------------------------------------------------------------------
Loan Officer I.D. No. Loan Group No. Obligor # Note # Amount
============================================================================================================================
</TABLE>
4
<PAGE>
[LOGO OF COMERICA APPEARS HERE]
EQUIPMENT RIDER
Hall, Kinion & Associates, Inc. ("Borrower") has entered into a certain
Loan and Security Agreement (Accounts and Inventory) dated April 26, 1995 with
Comerica Bank-California ("Bank"), as previously modified and as modified by
that certain Second Modification to Loan & Security Agreement of even date
herewith (hereinafter collectively referred to as the "Agreement"). This
Equipment Rider (hereinafter referred to as this "Rider") dated November 4, 1996
is hereby made a part of and incorporated into that Agreement.
1. Borrower grants to Bank a security interest in the following (hereinafter
referred to as "Equipment"):
(a) All of Borrower's present machinery, equipment, fixtures, vehicles,
office equipment, furniture, furnishings, tools, dies, jigs and
attachments, wherever located, (including but not limited to, the
items listed and described on the Schedule of Equipment attached
hereto and marked Exhibit "A" and by this reference made a part
hereof as though fully set forth hereat);
(b) all of Borrower's additional equipment, wherever located, of like or
unlike nature, to be acquired hereafter, and all replacements,
substitutes, accessions, additions and improvements to any of the
foregoing; and
(c) all of Borrower's general intangibles, including without limitation,
computer programs and computer disks.
2. Bank's security interest in the Equipment as set forth above shall secure
each, any and all of Borrower's Obligations to Bank, as the term "Obligations"
is defined in the Agreement; and, the payment of Borrower's indebtedness in the
principal amount of Twelve Million and 00/100 Dollars ($12,000,000.00) and
interest evidenced by the Agreement and various notes.
3. Bank may, in its sole discretion, from time to time hereafter, make loans
to Borrower. Loans made by Bank to Borrower pursuant to this Rider shall be
included as part of the Obligations of Borrower to Bank and at Bank's option,
may be evidenced by promissory note(s), in form satisfactory to Bank. Such loans
shall bear interest at the rate and be payable in the manner specified in said
promissory note(s) in the event Bank exercises the aforementioned option, and in
the event Bank does not, such loans shall bear interest at the rate and be
payable in the manner specified in the Agreement and various notes.
4. Borrower represents and warrants to Bank that:
(a) it has good and indefeasible title to the Equipment;
(b) the Equipment is and will be free and clear of all liens, security
interests, encumbrances and claims, except as held by Bank;
1
<PAGE>
(c) the Equipment shall be kept only within the jurisdictions listed on
Schedule A hereto except upon no less than thirty (30) days' prior
written notice to Bank;
(d) for those jurisdictions listed on Schedule A hereto in which the
Equipment located therein has an aggregate value in excess of
$25,000, the locations and the owners of the locations of such
equipment are listed on Schedule B hereto;
(e) Bank shall have the right demand now and/or at all times hereafter,
during Borrower's usual business hours to inspect and examine the
Equipment at Bank's expense so long as no Event of Default exists at
the time of such inspection, in which event Borrower agreed to
reimburse Bank for its reasonable costs and expenses in so doing.
5. Borrower shall keep and maintain the Equipment in good operating condition
and repair, make all necessary replacements thereto so that the value and
operating efficiency thereof shall at all times be maintained and preserved.
Borrower shall not permit any items of Equipment to become a fixture to real
estate or accession to other property, and the Equipment is now and shall at all
times remain and be personal property.
6. Borrower, at its expense, shall keep and maintain the Equipment insured
against loss or damage by fire, theft, explosion, sprinklers and all other
hazards and risks ordinarily insured against by other owners who use such
properties and interest in properties in similar businesses for the full
insurable value thereof; and business interruption insurance and public
liability and property damage insurance relating to Borrower's ownership and use
of its assets. All such policies of insurance shall be in such form, with such
companies and in such amounts as may be satisfactory to Bank. Borrower shall
deliver to Bank certified copies of such policies of insurance and evidence of
the payment of all premiums thereof. All such policies of insurance (except
those of public liability and property damage) shall contain an endorsement in a
form satisfactory to Bank showing loss payable to Bank and all proceeds payable
thereunder shall be payable to Bank and upon receipt by Bank shall be applied on
the account of Borrower's Obligations. To secure the payment of Borrower's
Obligations, Borrower grants Bank's security interest in and to all such
policies of insurance (except those of public liability and property damage) and
the proceeds thereof and directs all insurers under such policies of insurance
to pay all proceeds thereof directly to Bank). Borrower hereby irrevocably
appoints Bank (and any of Bank's officers, employees or agents designated by
Bank) as Borrower's attorney-in-fact for the purpose of making, settling and
adjusting claims under such policies of insurance if at such time an Event of
Default exists. Each such insurer shall agree by endorsement upon the policy or
policies of insurance issued by it to Borrower, or any other person, shall
affect the right of Bank to recover under such policy or policies of insurance
required above or to pay any premium in whole or in part relating thereto. Bank,
without waiving or releasing any obligations or defaults by Borrower hereunder,
may at any time or times hereafter, but shall have no obligations to do so,
obtain and maintain such policies of insurance and pay such premiums and take
any other action with respect to such policies which Bank deems advisable. All
sums so disbursed by Bank including reasonable attorneys' fees, court costs,
expenses and other charges relating thereto, shall be a part of Borrower's
Obligations and payable on demand.
7. Until default by Borrower under the Agreement, the various notes or this
Rider, Borrower may, subject to the provisions of the Agreement and this Rider
and consistent therewith, remain in possession hereof and use the Equipment
referred to herein in the ordinary course of business at the location or
locations hereinabove designated.
8. All of the terms, conditions, warranties, covenants, agreements and
representations of the Agreement are incorporated herein and reaffirmed.
2
<PAGE>
9. Upon a default by Borrower under the Agreement or this Rider, Borrower
upon request of Bank to do so, agrees to assemble and make the Equipment or any
part thereof available to Bank at a place designated by Bank.
10. Borrower shall upon demand by Bank immediately deliver to Bank and
properly endorse, any and all evidences of ownership, certificates of title or
applications for titles to any of the aforesaid items of Equipment.
11. Bank shall not in any way or manner be liable or responsible for (a) the
safekeeping of the Equipment; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any diminution in the value
thereof or (d) any act or default by any person whomsoever. All risk of Loss,
damage or destruction of the Equipment shall be borne by Borrower.
Borrower(s) HALL, KINION & *Subject to the terms and provisions of the
ASSOCIATES, INC. Agreement and all modifications thereto.
/s/ BRENDA HALL
- ------------------------------ -----------------------------------------
By: By:
/s/ PAUL H. BARTLETT
- ------------------------------ -----------------------------------------
By: By:
Accepted this 4th day of November, 1996 at Bank's place of business in San Jose,
CA 95113
By: /s/ BRADFORD SMITH
--------------------------------------
Bradford Smith
Vice President
3
<PAGE>
Schedule A
to Equipment Rider
California
Utah
Washington
Oregon
Colorado
Texas
Illinois
Arizona
Florida
New York
North Carolina
4
<PAGE>
LOCATION LESSOR
- -------- ------
MOUNTAIN VIEW FOSTER ENTERPRISES
1804 N. Shoreline Blvd., Suite 120 ---------------------------------------
Mountain View, CA 94043 P.O. BOX 4700, 1015 E. HILLSDALE BLVD.
---------------------------------------
FOSTER CITY, CA. 94404
---------------------------------------
Attn: LOUIE BROWNING
----------------------------------
Phone: 415-349-1244
---------------------------------
Fax: 415-349-3715
-----------------------------------
UTAH:
- ----
SALT LAKE CITY UTAH RETIREMENT SYSTEMS
7090 S. Union Park Ave., Suite 500 ---------------------------------------
Midvale, UT 84047 C/O PROWSUCOA MANAGEMENT, INC.
---------------------------------------
4885 SOUTH 900 EAST
---------------------------------------
SALT LAKE CITY, UTAH 84111
---------------------------------------
Attn: DAVID PENNOCK
----------------------------------
Phone: 801-263-5400
---------------------------------
Fax: 801-263-5450
-----------------------------------
One Utah Center [VALID?]
201 South Main, Suite 900 ---------------------------------------
Salt Lake City, UT 84111
---------------------------------------
---------------------------------------
Attn:
----------------------------------
Phone:
---------------------------------
Fax:
-----------------------------------
NORTH CAROLINA:
- --------------
RESEARCH TRIANGLE PARK CMD PROPERTIES, INC., AN ILLINOIS CORP.
2525 Meridian Parkway, Suite 280 ---------------------------------------
Durham, NC 27713 C/O CMD REALTY INVESTORS, INC.
---------------------------------------
P.O. BOX 13587, RESEARCH TRIANGLE PARK,
---------------------------------------
NC 27709
---------------------------------------
Attn: ALLAN ALDRIDGE, JR.
----------------------------------
Phone: 919-544-8805
---------------------------------
Fax: 919-544-6409
-----------------------------------
WASHINGTON:
- ----------
SEATTLE CORPORATE CAMPUS EAST III LIMITED
3005 112th Ave., N.E., Suite 102 ---------------------------------------
Bellevue, WA 98004 PARTNERSHIP
---------------------------------------
TEACHERS RETIREMENT SYSTEM OF THE
---------------------------------------
STATE OF ILLINOIS
---------------------------------------
C/O CUSHMAN & WAKEFIELD OF WA
---------------------------------------
700 FIFTH AVENUE, #2700, SEATTLE, WA
---------------------------------------
98104
---------------------------------------
Attn: THOMAS BOHMAN
----------------------------------
Phone: 206-455-4500
---------------------------------
Fax: 206-453-5381
-----------------------------------
6
<PAGE>
SCHEDULE B TO EQUIPMENT RIDER
LOCATION LESSOR
- -------- ------
CALIFORNIA:
- ----------
CORPORATE HEADQUARTERS 5300 STEVENS CREEK BLVD JOINT VENTURE,
5300 Stevens Creek Blvd., Suite 450 --------------------------------------
San Jose, CA 95129 A CALIFORNIA GENERAL PARTNERSHIP
--------------------------------------
C/O INSIGNIA COUNCIL GROUP, INC.
--------------------------------------
Attn: 160 WEST SANTA CLARA ST.
---------------------------------
SAN JOSE, CA 95113
---------------------------------
Attn: JUDY KANE
---------------------------------
408-288-2900
---------------------------------
408-288-2909 (FAX)
---------------------------------
SAN JOSE 5300 STEVENS CREEK BLVD JOINT VENTURE,
5300 Stevens Creek Blvd., Suite 320 --------------------------------------
San Jose, CA 95129 A CALIFORNIA GENERAL PARTNERSHIP
--------------------------------------
C/O INSIGNIA COUNCIL GROUP, INC.
--------------------------------------
Attn: 160 WEST SANTA CLARA ST.
---------------------------------
SAN JOSE, CA 95113
---------------------------------
Attn: JUDY KANE
---------------------------------
408-288-2900
---------------------------------
408-288-2909 (FAX)
---------------------------------
CAPITOLA CROSSROADS ASSOCIATES
820 Bay Ave., Suite 109 --------------------------------------
Capitola, CA 95010 C/O LOMAR PROPERTY GROUP, INC.
--------------------------------------
820 BAY AVE, SUITE 220
--------------------------------------
CAPITOLA, CA 95010
--------------------------------------
Attn: ROBIN EKSTRAND
---------------------------------
Phone: 408-476-3627
--------------------------------
Fax: 408-688-4455
----------------------------------
FREMONT-MILPITAS SPIEKER PROPERTIES, L.P.
1900 McCarthy Blvd., Suite 420 --------------------------------------
Milpitas, CA 95035 2480 N. FIRST ST., SUITE 190
--------------------------------------
SAN JOSE, CA 95113
--------------------------------------
Attn: JENNIFER FERRARI
---------------------------------
Phone: 408-435-3001
--------------------------------
Fax: 408-954-8216
----------------------------------
SOUTH VALLEY, SAN JOSE HONJO USA, LTD, A CALIF CORP.
3150 Almaden Expwy., Suite 202 --------------------------------------
San Jose, CA 95118 C/O BORELLI INVESTMENT COMPANY
--------------------------------------
1798 TECHNOLOGY DRIVE, SUITE 200
--------------------------------------
SAN JOSE, CA 95110
--------------------------------------
Attn: NANET FISHER
--------------------------------
Phone: 408-453-4700
--------------------------------
Fax: 408-453-5636
----------------------------------
5
<PAGE>
LOCATION LESSOR
- -------- ------
OREGON:
- ------
PORTLAND PETULA ASSOCIATES, LTD. (AN IOWA CORP.)
8705 S.W. Nimbus, Suite 270 ---------------------------------------
Beaverton, OR 97008 & KOLL CREEKSIDE ASSOCIATES, A
---------------------------------------
CALIFORNIA GENERAL PARTNERSHIP
---------------------------------------
C/O FORUM PROPERTIES
---------------------------------------
8705 SW NIMBUS AVENUE, SUITE 230
---------------------------------------
BEAVERTON, OREGON 97008
---------------------------------------
503-626-2677
---------------------------------------
503-641-6532 (FAX)
---------------------------------------
COLORADO:
- --------
DENVER STRAWBERRY HOLDINGS, INC.
5613 DTC Parkway, Suite 560 ---------------------------------------
Englewood, CO 80111 C/O THE GALBREATH COMPANY
---------------------------------------
5613 DTC PARKWAY, SUITE 170
---------------------------------------
ENGLEWOOD, CO 80111
---------------------------------------
Attn: DOUGLAS MOHR
----------------------------------
Phone: 303-850-7770
---------------------------------
Fax: 303-770-8747
-----------------------------------
4600 South Ulster Street, Suite 700
Denver, CO 80237 ---------------------------------------
---------------------------------------
---------------------------------------
Attn:
----------------------------------
Phone:
---------------------------------
Fax:
-----------------------------------
TEXAS:
- ------
AUSTIN WESTECH 360 LIMITED PARTNERSHIP
Westech 360 ---------------------------------------
8911 Capital Of Texas Highway, C/O INSIGNIA COMMERCIAL GROUP
Suite 3310 ---------------------------------------
Austin, TX 78759-7267 8911 CAPITAL OF TEXAS HIGHWAY,
---------------------------------------
SUITE 4120
---------------------------------------
AUSTIN, TX 78759
---------------------------------------
Attn: JULIA FINNEY
----------------------------------
Phone: 512-346-8997
---------------------------------
Fax: 512-338-0724
-----------------------------------
HOUSTON
4265 San Felipe, Suite 1100 ---------------------------------------
Houston, TX 77027
---------------------------------------
---------------------------------------
Attn:
----------------------------------
Phone:
---------------------------------
Fax:
-----------------------------------
7
<PAGE>
LOCATION LESSOR
- -------- ------
ARIZONA:
- -------
PHOENIX DMB PROPERTY VENTURES LTD. PARTNERSHIP
1201 S. Alma School Road, Suite 7550 ---------------------------------------
Mesa, AZ 85210 1201 S. ALMA SCHOOL ROAD, SUITE 6650
---------------------------------------
MESA, AZ 85210
---------------------------------------
Attn: MONICA DEAN
----------------------------------
Phone: 602-964-2000
---------------------------------
Fax: 602-964-5060
-----------------------------------
ILLINOIS:
- --------
CHICAGO
203 N. LaSalle Street, Suite 2100 ---------------------------------------
Chicago, IL 60601
---------------------------------------
---------------------------------------
Attn:
----------------------------------
Phone:
---------------------------------
Fax:
-----------------------------------
NEW YORK:
- --------
NEW YORK
590 5th Ave., 18th Floor ---------------------------------------
New York, NY 10036
---------------------------------------
---------------------------------------
Attn:
----------------------------------
Phone:
---------------------------------
Fax:
-----------------------------------
FLORIDA:
- -------
ORLANDO
101 Southhall Lane, Suite 400 ---------------------------------------
Maitland, FL 32751
---------------------------------------
---------------------------------------
Attn:
----------------------------------
Phone:
---------------------------------
Fax:
-----------------------------------
TAMPA
550 N. Reo St., Suite 300 ---------------------------------------
Tampa, FL 33609-1013
---------------------------------------
---------------------------------------
Attn:
----------------------------------
Phone:
---------------------------------
Fax:
-----------------------------------
8
<PAGE>
[LOGO OF COMERICA APPEARS HERE]
BORROWER'S AUTHORIZATION
DATE: OCTOBER 16, 1996
------------------
I (we) hereby authorized and direct COMERICA BANK-CALIFORNIA ("Bank") to
pay
to RENEW AND INCREASE LOAN #3384556864-26 $ 168,000.00
--------------------------------------------- -------------------------
to $
--------------------------------------------- -------------------------
to $
--------------------------------------------- -------------------------
to $
--------------------------------------------- -------------------------
of the proceeds of my (our) loan from the Bank evidenced by a note in the
original principal amount of $7,000,000.00 , dated OCTOBER 16, 1996.
------------------ ----------------
Borrower(s): HALL, KINION & ASSOCIATES, INC.
--------------------------------------
By: /s/ BRENDA HALL Its: CEO
----------------------------- -------------------------
Signature of Title (if applicable)
By: /s/ PAUL H. BARTLETT Its: President
----------------------------- -------------------------
Signature of Title (if applicable)
By: Its:
----------------------------- -------------------------
Signature of Title (if applicable)
By: Its:
----------------------------- -------------------------
Signature of Title (if applicable)
<PAGE>
[LOGO OF COMERICA APPEARS HERE]
BORROWER'S AUTHORIZATION
DATE: OCTOBER 21, 1996
------------------
I (we) hereby authorize and direct COMERICA BANK-
-------------
CALIFORNIA ("Bank") to pay
- ----------
to CLOSE LOAN #3384556864-59 $ 4,000,000.00
--------------------------------------------- -------------------------
to $
--------------------------------------------- -------------------------
to $
--------------------------------------------- -------------------------
to $
--------------------------------------------- -------------------------
of the proceeds of my (our) loan from the Bank evidenced by a note in the
original principal amount of $4,000,000.00, dated OCTOBER 21, 1996.
------------- ----------------
Borrower(s): HALL, KINION & ASSOCIATES, INC.
-----------------------------------------
By: /s/ BRENDA HALL Its: CEO
----------------------------- -------------------------
Signature of Title (if applicable)
By: /s/ PAUL H. BARTLETT Its: President
----------------------------- -------------------------
Signature of Title (if applicable)
By: Its:
----------------------------- -------------------------
Signature of Title (if applicable)
By: Its:
----------------------------- -------------------------
Signature of Title (if applicable)
<PAGE>
[LOGO OF COMERICA APPEARS HERE]
Guaranty
- --------------------------------------------------------------------------------
The undersigned, for value received, unconditionally and absolutely guarantee(s)
to COMERICA BANK-CALIFORNIA ("Bank") a California banking corporation, and to
------------------------
the Bank's successors and assigns, payment when due, whether by stated maturity,
demand, acceleration or otherwise, of all existing and future indebtedness to
the Bank of HALL, KINION & ASSOCIATES, INC. ("Borrower") whose address is 5300
------------------------------ ----
STEVENS CREEK BOULEVARD, SAN JOSE, CA. of any successor in interest, including
- -------------------------------------
without limit any debtor-in-possession or trustee in bankruptcy which succeeds
to the interest of this party or person (jointly and severally the "Borrower"),
however this indebtedness has been or may be incurred or evidenced, whether
absolute or contingent direct or indirect, voluntary or involuntary, liquidated
or unliquidated, joint or several, and whether or not known to the undersigned
at the time of this Guaranty or at the time any future indebtedness is incurred
(the "Indebtedness").
The Indebtedness guaranteed includes without limit: (a) any and all direct
indebtedness of the Borrower to the Bank, including indebtedness evidenced by
any and all promissory notes; (b) any and all obligations or liabilities of the
Borrower to the Bank arising under any guaranty where the Borrower has
guaranteed the payment of indebtedness owing to the Bank from a third party; (c)
any and all obligations or liabilities of the Borrower to the Bank arising from
applications or agreements for the issuance of letters of credit; (d) any and
all obligations or liabilities of the Borrower to the Bank arising out of any
other agreement by the Borrower including without limit any agreement to
indemnify the Bank for environmental liability or to clean up hazardous waste;
(e) any and all indebtedness, obligations or liabilities for which the Borrower
would otherwise be liable to the Bank were it not for the invalidity,
irregularity or unenforceability of them by reason of any bankruptcy, insolvency
or other law or order of any kind, or for any other reason, including without
limit liability for interest and attorneys' fees on, or in connection with, any
of the indebtedness from and after the filing by or against the Borrower of a
bankruptcy petition whether an involuntary or voluntary bankruptcy case,
including, without limitation, all attorneys' fees and costs incurred in
connection with motions for relief from stay, cash collateral motions,
nondischargeability motions, preference liability motions, fraudulent conveyance
liability motions, fraudulent transfer liability motions and all other motions
brought by Borrower, Guarantor, Bank or third parties in any way relating to
Bank's rights with respect to such Borrower, Guarantor, or third party and/or
affecting any collateral securing any obligation owed to Bank by Borrower,
Guarantor, or any third party, probate proceedings, on appeal or otherwise; (f)
any and all amendments, modifications, renewals and/or extensions of any of the
above, including without limit amendments, modifications, renewals and/or
extensions which are evidenced by new or additional instruments, documents or
agreements; and (g) all costs of collecting Indebtedness, including without
limit reasonable attorneys' fees and costs.
The undersigned waive(s) notice of this Guaranty and presentment, demand,
protest, notice of protest, dishonor, notice of dishonor, notice of default,
notice of intent to accelerate or demand payment of any Indebtedness, and
diligence in collecting any Indebtedness, and agree(s) that the Bank may modify
the terms of any Indebtedness, compromise, extend, increase, accelerate, renew
or forbear to enforce payment of any or all Indebtedness, or permit the Borrower
to incur additional Indebtedness, all without notice to the undersigned and
without affecting in any manner the unconditional obligation of the undersigned
under this Guaranty. The undersigned further waive(s) any and all other notices
to which the undersigned might otherwise be entitled. The undersigned
acknowledge(s) and agree(s) that the liabilities created by this Guaranty are
direct and are not conditioned upon pursuit by the Bank of any remedy the Bank
may have against the Borrower or any other person or any security. No
invalidity, irregularity or unenforceability of any part or all of the
Indebtedness or any documents evidencing the same, by reason of any bankruptcy,
insolvency or other law or order of any kind or for any other reason, and no
defense or setoff available at any time to the Borrower, shall impair, affect or
be a defense or setoff to the obligations of the undersigned under this
Guaranty.
The undersigned deliver(s) this Guaranty based solely on the undersigned's
independent investigation of the financial condition of the Borrower and is
(are) not relying on any information furnished by the Bank. The undersigned
assume(s) full responsibility for obtaining any further information concerning
the Borrower's financial condition, the status of the Indebtedness or any other
matter which the undersigned may deem necessary or appropriate from time to
time. The undersigned waive(s) any duty on the part of the Bank, and agree(s)
that it is not relying upon nor expecting the Bank to disclose to the
undersigned any fact now or later known by the Bank, whether relating to the
operations or condition of the Borrower, the existence, liabilities or financial
condition of any co-guarantor of the Indebtedness, the occurrence of any default
with respect to the Indebtedness, or otherwise, notwithstanding any effect these
facts may have upon the undersigned's risk under this Guaranty or the
undersigned's rights against the Borrower. The undersigned knowingly accept(s)
the full range of risk encompassed in this Guaranty, which risk includes without
limit the possibility that the Borrower may incur Indebtedness to the Bank after
the financial condition of the Borrower, or its ability to pay its debts as they
mature, has deteriorated.
The undersigned represent(s) and warrant(s) that: (a) the Bank has made no
representation to the undersigned as to the creditworthiness of the Borrower;
and (b) the undersigned has (have) established adequate means of obtaining from
the Borrower on a continuing basis financial and other information pertaining to
the Borrower's financial condition. The undersigned agree(s) to keep adequately
informed of any facts, events or circumstances which might in any way affect the
risks of the undersigned under this Guaranty.
The undersigned grant(s) to the Bank a security interest in and the right of
setoff as to any and all property of the undersigned now or later in the
possession of the Bank. The undersigned subordinate(s) any claim of any nature
that the undersigned now or later has (have) against the Borrower to and in
favor of all Indebtedness and agree(s) not to accept payment or satisfaction of
any claim that the undersigned now or later may have against the Borrower
without the prior written consent of the Bank. Should any payment,
distribution, security, or proceeds, be received by the undersigned upon or with
respect to any claim that the undersigned now or may later have against the
Borrower, the undersigned shall immediately deliver the same to the Bank in the
form received (except for endorsement or assignment by the undersigned where
required by the Bank) for application on the Indebtedness, whether matured or
unmatured, and until delivered the same shall be held in trust by the
undersigned as the property of the Bank. The undersigned further assign(s) to
the Bank as collateral for the obligations of the undersigned under this
Guaranty all claims of any nature that the undersigned now or later has (have)
against the Borrower (other than any claim under a deed of trust or mortgage
covering real property) with full right on the part of the Bank, in its own name
or in the name of the undersigned, to collect and enforce these claims.
The undersigned agree(s) that no security now or later held by the Bank for the
payment of any Indebtedness, whether from the Borrower, any guarantor, or
otherwise, and whether in the nature of a security interest, pledge, lien,
assignment, setoff, suretyship, guaranty, indemnity, insurance or otherwise,
shall affect in any manner the unconditional obligation of the undersigned under
this Guaranty, and the Bank, in its sole discretion, without notice to the
undersigned, may release, exchange, enforce and otherwise deal with any security
without affecting in any manner the unconditional obligation of the undersigned
under this Guaranty. The undersigned acknowledge(s) and agree(s) that the Bank
has no obligation to acquire or perfect any lien on or security interest in any
asset(s), whether realty or personalty, to secure payment of the Indebtedness,
and the undersigned is (are) not relying upon any asset(s) in which the Bank has
or may have a lien or security interest for payment of the Indebtedness.
The undersigned acknowledge(s) that the effectiveness of this Guaranty is not
conditioned on any or all of the Indebtedness being guaranteed by anyone else.
Until the Indebtedness is irrevocably paid in full, the undersigned waive(s) any
and all rights to be subrogated to the position of the Bank or to have the
benefit of any lien, security interest or other guaranty now or later held by
the Bank for the Indebtedness or to enforce any remedy which the Bank now or
later has against the Borrower or any other person. Until the Indebtedness is
irrevocably paid in full, the undersigned shall have no right of reimbursement,
indemnity, contribution or other right of recourse to or with respect to the
Borrower or any other person. The undersigned agree(s) to indemnity and hold
harmless the Bank from and against any and all claims, actions, damages, costs
and expenses, including without limit reasonable attorneys' fees, incurred by
the Bank in connection with the
1.
<PAGE>
undersigned's exercise of any right of subrogation, contribution,
indemnification or recourse with respect to this Guaranty. The Bank has no duty
to enforce or protect any rights which the undersigned may have against the
Borrower or any other person and the undersigned assume(s) full responsibility
for enforcing and protecting these rights.
Notwithstanding any provision of the preceding paragraph or anything else in
this Guaranty to the contrary, if any of the undersigned is or becomes an
"insider" or "affiliate" (as defined in Section 101 of Federal Bankruptcy Code,
as it may be amended) with respect to the Borrower, then that undersigned
irrevocably and absolutely waives any and all rights of subrogation,
contribution, indemnification, recourse, reimbursement and any similar rights
against the Borrower (or any other guarantor) with respect to this Guaranty,
whether such rights arise under an express or implied contract or by operation
of law. It is intention of the parties that the undersigned shall not be (or be
deemed to be) a "creditor" (as defined in Section 101 of the Federal Bankruptcy
Code, as it may be amended) of the Borrower (or any other guarantor) by reason
of the existence of this Guaranty in the event that the Borrower becomes a
debtor in any proceeding under the Federal Bankruptcy Code. This waiver is
given to induce the Bank to enter into certain written contracts with the
Borrower included in the Indebtedness. The undersigned warrant(s) and agree(s)
that none of Bank's rights, remedies or interests shall be directly or
indirectly impaired because of any of the undersigned's status as an "insider"
or "affiliate" of the Borrower, and undersigned shall take any action, and shall
execute any document, which the Bank may request in order to effectuate this
warranty to the Bank.
If any Indebtedness is guaranteed by two or more guarantors, the obligation of
the undersigned shall be several and also joint, each with all and also each
with any one or more of the others, and may be enforced at the option of the
Bank against each severally, any two or more jointly, or some severally and some
jointly the Bank, in its sole discretion, may release any one or more of the
guarantors for any consideration which it deems adequate, and may fail or elect
not to prove a claim against the estate of any bankrupt, insolvent, incompetent
or deceased guarantor; and after that, without notice to any other guarantor,
the Bank may extend or renew any or all Indebtedness and may permit the Borrower
to incur additional Indebtedness, without affecting in any manner the
unconditional obligation of the remaining guarantor(s). This action by the Bank
shall not, however, be deemed to affect any right to contribution which may
exist among the guarantors.
Any of the undersigned may terminate their obligation under this Guaranty as to
future Indebtedness (except as provided below) by (and only by) delivering
written notice of termination to an officer of the Bank and receiving from an
officer of the Bank written acknowledgement of delivery; provided, the
termination shall not be effective until the opening of business on the fifth
(5th) day following written acknowledgement of delivery. Any termination shall
not affect in any way the unconditional obligations of the remaining
guarantor(s), whether or not the termination is known to the remaining
guarantor(s). Any termination shall not affect in any way the unconditional
obligations of the terminating guarantor(s) as to any Indebtedness existing at
the effective date of termination or any Indebtedness created after that
pursuant to any commitment or agreement of the Bank or any Borrower loan with
the Bank existing at the effective date of termination (whether advances or
readvances by the Bank are optional or obligatory), or any modifications,
extensions or renewals of any of this Indebtedness, whether in whole or in part,
and as to all of this Indebtedness and modifications, extensions or renewals of
it, this Guaranty shall continue effective until the same shall have been fully
paid. The Bank has no duty to give notice of termination by any guarantor(s) to
any remaining guarantor(s). The undersigned shall indemnify the Bank against
all claims, damages, costs and expenses, including without limit reasonable
attorneys' fees and costs, incurred by the Bank in connection with any suit,
claim or action against the Bank arising out of any modification or termination
of a Borrower loan or any refusal by the Bank to extend additional credit in
connection with the termination of this Guaranty.
Notwithstanding any prior revocation, termination, surrender or discharge of
this Guaranty (or of any lien, pledge or security interest securing this
Guaranty) in whole or part, the effectiveness of this Guaranty, and of all
liens, pledges and security interests securing this Guaranty, shall
automatically continue or be reinstated, as the case may be, in the event that
(a) any payment received or credit given by the Bank in respect of the
Indebtedness is returned, disgorged or rescinded as a preference, impermissible
setoff, fraudulent conveyance, diversion of trust funds, or otherwise under any
applicable state or federal law, including, without limitation, laws pertaining
to bankruptcy or insolvency, in which case this Guaranty, and all liens, pledges
and security interests securing this Guaranty, shall be enforceable against the
undersigned as if the returned, disgorged or rescinded payment or credit had not
been received or given by the Bank, and whether or not the Bank relied upon this
payment or credit or changed its position as a consequence of it; or (b) any
liability is imposed, or sought to be imposed, against the Bank relating to the
environmental condition of, or the presence of hazardous or toxic substances on,
in or about, any property given as collateral to the Bank by the Borrower,
whether this condition is known or unknown, now exists or subsequently arises
(excluding only conditions which arise after any acquisition by the Bank of any
such property, by foreclosure, in lieu of foreclosure or otherwise, to the
extent due to the wrongful act or omission of the Bank), in which case this
Guaranty, and all liens, pledges and security interests securing this Guaranty
shall be enforceable against the undersigned to the extent of all liability,
costs and expenses (including without reasonable attorneys' fees and costs)
incurred by the Bank as the direct or indirect result of any environmental
condition or hazardous or toxic substances. In the event of continuation or
reinstatement it, the undersigned agree(s) upon demand by the Bank to execute
and deliver to the Bank those documents which the Bank determines are
appropriate to further evidence (in the public records or otherwise this
continuation or reinstatement, although the failure of the undersigned to do so
shall not affect in any way the reinstatement or continuation. If the
undersigned do(es) not execute and deliver to the Bank upon demand such
documents, the Bank and each Bank officer is irrevocably appointed (which
appointment is coupled with an interest) the true and lawful attorney of the
undersigned (with full power of substitution) to execute and deliver such
documents in the name and on behalf of the undersigned. For purposes of this
Guaranty, "environmental condition" includes, without limitation, conditions
existing with respect to the surface or ground water, drinking water supply,
land surface or subsurface and the air; and "hazardous or toxic substances"
shall include any and all substances now or subsequently determined by any
federal, state or local authority to be hazardous or toxic, or otherwise
regulated by any of these authorities.
Although the intent of the undersigned and the Bank is that California law shall
apply to this Guaranty, regardless of whether California law applies, the
undersigned further agree(s) as follows: With respect to the limitation, if any,
stated in the Additional Provisions below on the amount of principal guaranteed
under this Guaranty, the undersigned agree(s) that (a) this limitation shall not
be a limitation on the amount of Borrower's Indebtedness to the Bank; (b) any
payments by the undersigned shall not reduce the maximum liability of the
undersigned under this Guaranty unless written notice to that effect is actually
received by the Bank at or prior to the time of the payment; and (c) the
liability of the undersigned to the Bank shall at all times be deemed to be the
aggregate liability of the undersigned under this Guaranty and any other
guaranties previously or subsequently given to the Bank by the undersigned and
not expressly revoked, modified or invalidated in writing.
The undersigned waive(s) any right to require the Bank to: (a) proceed any
person, including without limit the Borrower; (b) proceed against or exhaust any
security held from the Borrower or any other person; (c) give notice of the
terms, time and place of any public or private sale of personal property
security held from the Borrower or any other person, or otherwise comply with
the provisions of Section 9-504 of the California or other applicable Uniform
Commercial Code; (d) pursue any other remedy in the Bank's power; or (e) make
any presentments or demands for performance, or give any notices of
nonperformance, protests, notices of protest, or notices of dishonor in
connection with any obligations or evidences of Indebtedness held by the Bank as
security, in connection with any other obligations or evidences of Indebtedness
which constitute in whole or in part Indebtedness, or in connection with the
creation of new or additional Indebtedness.
The undersigned authorize(s) the Bank, either before or after termination of
this Guaranty, without notice to or demand on the undersigned and without
affecting the undersigned's liability under this Guaranty, from time to time to:
(a) apply any security and direct the order or manner of sale of it, including
without limit, a nonjudicial sale permitted by the terms of the controlling
security agreement, mortgage or deed of trust, as the Bank in its discretion may
determine; (b) release or substitute any one or more of the endorsers or any
other guarantors of the Indebtedness; and (c) apply payments received by the
Bank from the Borrower to any indebtedness of the Borrower to the Bank, in such
order as the Bank shall determine in its sole discretion, whether or not this
indebtedness is covered by this Guaranty, and the undersigned waive(s) any
provision of law regarding application of payments which specifies otherwise.
The Bank may without notice assign this Guaranty in whole or in party. Upon the
Bank's request, the undersigned agree(s) to provide to the Bank copies of the
undersigned's financial statements.
2.
<PAGE>
The undersigned waive(s) any defense based upon or arising by reason of (a) any
disability or other defense of the Borrower or any other person; (b) the
cessation or limitation from any cause whatsoever, other than final and
irrevocable payment in full, of the Indebtedness; (c) any lack of authority of
any officer, director, partner, agent or any other person acting or purporting
to act on behalf of the Borrower which is a corporation, partnership or other
type of entity, or any defect in the formation of the Borrower; (d) the
application by the Borrower of the proceeds of any Indebtedness for purposes
other than the purposes represented by the Borrower to the Bank or intended or
understood by the Bank or the undersigned; (e) any act or omission by the Bank
which directly or indirectly results in or aids the discharge of the Borrower or
any Indebtedness by operation of law or otherwise; or (f) any modification of
the Indebtedness, in any form whatsoever including without limit any
modification made after effective termination, and including without limit, the
renewal, extension, acceleration or other change in time for payment of the
Indebtedness, or other change in the terms of any Indebtedness, including
without limit increase or decrease of the interest rate. The undersigned waives
all rights and defenses arising out of an election of remedies by the Bank, even
though that election of remedies, such as a nonjudicial foreclosure with respect
to security for a guaranteed obligation, has destroyed the guarantor's rights of
subrogation and reimbursement against the principal by the operation of Section
580d of the Code of Civil Procedure or otherwise. By way of example, the
undersigned waive(s) any defense the undersigned may have based upon any
election of remedies by the Bank which destroys, reduces, or extinguishes the
undersigned's subrogation rights or the undersigned's right to proceed against
the Borrower of the Borrower's assets for reimbursement, including without limit
(1) any loss of rights the undersigned may suffer by reason of any rights,
powers, remedies, or defenses of the Borrower in connection with any anti-
deficiency, appraisement or valuation laws or any other laws limiting,
qualifying or discharging any Indebtedness; (2) any defense based on estoppel
arising from the operation of Code of Civil Procedure Section 580d; (3) any
defense based on the Bank's loss of the right to obtain a deficiency judgment
against the Borrower after a nonjudicial foreclosure sale; and/or (4) any
defense arising out of the Bank's nonjudicial foreclosure on any real property
security securing the repayment of the Borrower's Indebtedness which nonjudicial
foreclosure would destroy the undersigned's subrogation rights against the
Borrower. The undersigned acknowledge(s) that the Bank's nonjudicial
foreclosure on any real property security securing the repayment of the
Borrower's Indebtedness could, pursuant to Code of Civil Procedure Section 580d,
preclude the Bank from obtaining a deficiency judgment against the Borrower and
could thereby destroy, impair, or reduce the undersigned's right of subrogation
against the Borrower, and the undersigned further acknowledge(s) and
understand(s) that, absent the foregoing waiver, such destruction, impairment,
or reduction of the undersigned's subrogation rights would prevent the Bank from
proceeding against the undersigned for the balance of the Indebtedness due.
The undersigned acknowledge(s) that the Bank has the right to sell, assign,
transfer, negotiate, or grant participations in all or any part of the
Indebtedness and any related obligations, including without limit this Guaranty.
In connection with that right, the Bank may disclose any documents and
information which the Bank now or later acquires relating to the undersigned and
this Guaranty, whether furnished by the Borrower, the undersigned or otherwise.
The undersigned further agree(s) that the Bank may disclose these documents and
information to the Borrower. The undersigned agree(s) that the Bank may provide
information relating to this Guaranty or to the undersigned to the Bank's
parent, affiliates, subsidiaries and service providers.
The total obligation under this Guaranty shall be UNLIMITED unless specifically
limited in the Additional Provisions of this Guaranty, and this obligation
(whether unlimited or limited to the extent indicated in the Additional
Provisions) shall include, IN ADDITION TO any limited amount of principal
guaranteed, any and all interest on all Indebtedness and any and all costs and
expenses of any kind, including without limit reasonable attorneys' fees and
costs, incurred by the Bank at any time(s) for any reason in enforcing any of
the duties and obligations of the undersigned under this Guaranty or otherwise
incurred by the Bank in any way connected with this Guaranty, the Indebtedness
or any other guaranty of the Indebtedness (including without limit reasonable
attorneys' fees and other expenses incurred in any suit involving the conduct of
the Bank, the Borrower or the undersigned). All of these costs and expenses
shall be payable immediately by the undersigned when incurred by the Bank,
without demand, and until paid shall bear interest at the highest per annum rate
applicable to any of the Indebtedness, but not in excess of the maximum rate
permitted by law. Any reference in this Guaranty to attorneys' fees shall be
deemed a reference to fees, charges, costs and expenses of both in-house and
outside counsel and paralegals, whether or not a suit or action is instituted,
and to court costs if a suit or action is instituted, and whether attorneys'
fees or court costs are incurred at the trial court level, on appeal, in a
bankruptcy, administrative or probate proceeding or otherwise. Any reference in
the Additional Provisions or elsewhere (a) to this Guaranty being secured by
certain collateral shall NOT be deemed to limit the total obligation of the
undersigned under this Guaranty or (b) to this Guaranty being limited in any
respect shall NOT be deemed to limit the total obligation of the undersigned
under any prior to subsequent guaranty given by the undersigned to the Bank.
The undersigned unconditionally and irrevocably waive(s) each and every defense
and setoff of any nature which, under principles of guaranty or otherwise, would
operate to impair or diminish in any way the obligation of the undersigned under
this Guaranty, and acknowledge(s) that each such waiver is by this reference
incorporated into each security agreement, collateral assignment, pledge and/or
other document from the undersigned now or later securing this Guaranty and/or
the Indebtedness, and acknowledge(s) that as of the date of this Guaranty no
such defense or setoff exists. The undersigned acknowledge(s) that the
effectiveness of this Guaranty is subject to no conditions of any kind.
The Guaranty shall remain effective with respect to successive transactions
which shall either continue the Indebtedness, increase or decrease it, or from
time to time create new Indebtedness after all or any prior Indebtedness has
been satisfied, until this Guaranty is terminated in the manner and to the
extent provided above.
The undersigned warrant(s) and agree(s) that each of the waivers set forth above
are made with undersigned's full knowledge of their significance and
consequences, and that under the circumstances, the waivers are reasonable and
not contrary to public policy or law. If any of these waivers are determined to
be contrary to any applicable law or public policy, these waivers shall be
effective only to the extent permitted law.
This Guaranty constitutes the entire agreement of the undersigned and the Bank
with respect to the subject matter of this Guaranty. No waiver, consent,
modification or change of the terms of this Guaranty shall bind any of the
undersigned or the Bank unless in writing and signed by the waiving party or an
authorized officer of the waiving party, and then this waiver, consent,
modification or change shall be effective only in the specific instance and for
the specific purpose given. This Guaranty shall inure to the benefit of the
Bank and its successors and assigns. The Guaranty shall be binding on the
undersigned and the undersigned's heirs, legal representatives, successors and
assigns including, without limit, any debtor in possession or trustees in
bankruptcy for any of the undersigned. The undersigned has (have) knowingly and
voluntarily entered into this Guaranty in good faith for the purpose of inducing
the Bank to extend credit or make other financial accommodations to the
Borrower, and the undersigned acknowledge(s) that the terms of this Guaranty are
reasonable. If any provision of this Guaranty is unenforceable in whole or in
part for any reason, the remaining provisions shall continue to be effective.
THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF CALIFORNIA.
Additional Provisions (if any):
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
3.
<PAGE>
THE UNDERSIGNED AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED, EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT WAIVES ANY RIGHT TO TRAIL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS GUARANTY OR THE INDEBTEDNESS.
IN WITNESS WHEREOF, the undersigned has (have) signed this Guaranty on April 26,
---------
1995.
--
GUARANTOR(S) BRENDA HALL
--------------------------------------
By: /s/ Brenda Hall
-----------------------------------------------
Signature of BRENDA HALL
Its: N/A
-------------------------------------------
(If Applicable)
By:
-----------------------------------------------
Signature of
Its:
-------------------------------------------
(If Applicable)
GUARANTOR'S ADDRESS
19050 CAMINO BARCO
--------------------------------------------------
Street Address
SARATOGA, CA. 95020
--------------------------------------------------
City State Zip Code
4.
<PAGE>
EXHIBIT 10.23
PROMISSORY NOTE SECURED BY DEED OF TRUST
$100,000 San Jose, California
- -------- August 5, 1996
For value received, the undersigned (each individually a "Borrower"
and collectively referred to herein as the "Borrowers") promise to pay to the
order of Hall, Kinion & Associates, Inc., a California corporation (the
"Holder"), at its principal offices at 5300 Stevens Creek Blvd., San Jose,
California 95129 the sum of $100,000, with interest compounded annually from the
date hereof on unpaid principal at the rate of 6.74% per annum. Principal and
interest shall be due and payable in monthly installments of $1967.88 on the
1st day of each month, beginning on the 1st day of September, 1996, and
continuing each consecutive month thereafter until all principal and accrued but
unpaid interest has been paid in full, with any unpaid principal and all accrued
but unpaid interest due and payable on the 1st day of September, 2001. Each
payment shall be credited first on interest then due and the remainder on
principal. Immediately thereafter, interest shall cease on the principal so
credited. Principal and interest are payable in lawful money of the United
States.
1. Loan Forgiveness. Each monthly payment coming due under the terms
----------------
above shall be fully and unconditionally waived by Holder, PROVIDED THAT, Rita
S. Hazell ("Hazell") is employed by Holder at the time such payment comes due.
If at any point in time an outstanding balance remains payable under this Note,
and Holder terminates Hazell's employment, with or without cause, (each, a
"Termination Event") then, after such Termination Event, all sums becoming due
and payable hereunder after the occurrence of any such Termination Event, shall
be paid in cash by Borrowers in accordance with the payment terms set forth the
first paragraph hereof, and such payments shall not be forgiven or waived by
Holder pursuant to this paragraph. If at the end of the term of this Note
Hazell continues to be employed by Holder, the entire debt evidenced by this
Note shall be fully and unconditionally forgiven by Holder and the Holder shall
return the original Note to Borrowers.
2. Events of Default. It shall be an "Event of Default" under this
-----------------
Note if (i) Hazell voluntarily terminates her employment with Holder; (ii) any
payment of principal, interest or any other sum required to be paid by Borrowers
to Holder under this Note is not received by Holder on the date due and such
default is not cured within five (5) business days after notice thereof from
Holder to Borrowers; (iii) Borrowers or either of them fail to perform or
observe any other covenant, condition, agreement or obligation on the part of
Borrowers to be performed or observed hereunder and such non-monetary default is
not readily susceptible of being cured within thirty (30) days; (iv) Borrowers
fail to execute a second deed of trust (the "Second Deed of Trust") on their
principal residence in California (the "Property") within thirty (30) days of a
<PAGE>
request from Holder; (v) Hazell fails to execute a Stock Pledge Agreement
covering shares of Hall, Kinion & Associates, Inc. Common Stock that she may
acquire from time to time pursuant to options granted her by the Holder within
thirty (30) days of a request from Holder; (vi) Borrowers or either of them
sell, convey or alienate the Property or any part thereof, or any interest
therein, or are divested of their title or any interest therein in any manner or
way, whether voluntarily or involuntarily, without the written consent of the
Holder being first had and obtained, (vii) Borrowers or either of them become
insolvent, commit any act of bankruptcy, execute a general assignment for the
benefit of creditors, file or have filed against them any petition of bankruptcy
or any petition for relief under the provisions of the federal bankruptcy act or
any other state or federal law for the relief of debtors which petition is
continued without dismissal for a period of 30 days or more; or a receiver or
trustee is appointed to take possession of any property or assets of the
Borrowers or either of them, or an attachment of or execution against any
property of the Borrowers or either of them occurs; or (viii) an Event of
Default occurs under the Second Deed of Trust or any Stock Pledge Agreement.
3. Acceleration. Upon the occurrence of an Event of Default
------------
hereunder, the unpaid principal balance of this Note, all accrued, unpaid
interest, fees, costs and charges due hereunder, shall at the option of the
Holder become immediately due and payable, notwithstanding anything to the
contrary contained herein. The failure to exercise such option shall not
constitute a waiver on the part of Holder of the right to exercise such option
at any other time.
4. Application of Proceeds. In the event of the acceleration of this
-----------------------
Note as a result of an Event of Default under this Note, the proceeds of any
sale of the real property encumbered by the Second Deed of Trust, or any other
property securing the indebtedness evidenced hereby, including, but not limited
to, shares of Hall, Kinion & Associates, Inc. Common Stock purchased by Hazell
pursuant to options granted her by Hall, Kinion & Associates, Inc., whether by
foreclosure, or otherwise, to the extent applied to the payment of Borrower's
obligations under this Note, shall be applied in the following order: (i) FIRST,
to any unpaid late charges, fees, costs and the like; SECOND to any accrued and
unpaid interest.
5. Attorney's Fees. Whether or not suit is filed, Borrowers agree to
---------------
pay all reasonable attorneys' fees, costs of collection, costs, and expenses
incurred by Holder in connection with the enforcement or collection of this
Note. Borrowers further agree to pay all costs of suit and the sum adjudged as
attorneys' fees in any action to enforce payment of this Note or any part of it.
6. Security. The proceeds of the loans evidenced by this Note shall
--------
be applied solely to the purchase of the Property. Payment of this Note shall be
secured by the Second Deed of Trust on the Property and, at Holder's option, one
or more Stock Pledge Agreements to be executed by Hazell covering any shares of
Hall, Kinion & Associates, Inc. Common Stock Hazell may acquire upon the
exercise of stock options granted her by the Holder. Borrowers shall, however,
remain personally liable for payment of this Note and assets of the Borrowers,
in
2
<PAGE>
addition to the collateral under the Second Deed of Trust and Stock Pledge
Agreement(s), may be applied to the satisfaction of Borrowers' obligations
hereunder.
7. Law Governing. This Note shall be construed and enforced in
-------------
accordance with, and governed by, the internal laws of the State of California,
excluding that body of law applicable to conflicts of law.
8. Notice. Any notice given by Holder to either of the undersigned
------
Borrowers shall be deemed to have been given to both of them.
BORROWERS
/s/ Rita S. Hazell
-----------------------------
Rita S. Hazell
/s/ Quentin D. Hazell
-----------------------------
Quentin D. Hazell
Acknowledgment
State of California )
) ss
County of ___________ )
State of California
County of ____________
On __________, before me, ______________, personally appeared Rita S. Hazell
and Quentin D. Hazell personally known to me or proved to me on the basis of
satisfactory evidence to be the person whose names are subscribed to the within
instrument and acknowledged to me that they executed the same, and that by their
signatures on the instrument, those persons executed the instrument.
WITNESS my hand and official seal.
Signature_____________________________________________________ [Seal]
3
<PAGE>
EXHIBIT 10.24
SETTLEMENT AGREEMENT WITH MUTUAL RELEASE
THIS SETTLEMENT WITH MUTUAL RELEASE (the "Agreement") is executed as
of this ___ day of May, 1997 by and between RICHARD E. SWANSON ("Swanson") and
HALL MINION & ASSOCIATES, INC. ("Hall Kinion"), BRENDA C. HALL ("Hall") and TODD
J. KINION ("Kinion").
RECITALS
A. The parties are involved in a dispute concerning various claims
arising out of or connected with Swanson's employment with Hall Kinion and his
termination from employment with Hall Kinion and Swanson's alleged contract and
tort claims against Hall Kinion, which claims are contained in action number
742500 now pending in the Superior Court of the State of California in and for
the County of Santa Clara, and entitled Richard E. Swanson, plaintiff, vs. Hall,
----------------------------------------
Kinion & Associates, Inc., Brenda C. Hall and Todd J. Kinion, and Does 1 through
- --------------------------------------------------------------------------------
10 defendants (the "Action").
- -------------
B. The parties desire that the Action be terminated and resolved
without further legal proceedings, thereby avoiding the inconvenience, expense,
uncertainty and risks involved in continued litigation.
In consideration of the promises and mutual covenants contained in
this Agreement, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree as follows:
(1) Upon its receipt of a copy of this Agreement executed by Swanson,
Hall Kinion shall, within ten days, pay to Swanson, the sum of One Hundred
Twenty Thousand Dollars ($120,000) in cash and shall transfer to Swanson fifteen
thousand (15,000) shares of Hall Kinion common stock. The cash payment shall be
in the form of a check made payable to "Richard E. Swanson and his attorneys,
Camerlengo & Johnson" and shall be
<PAGE>
mailed to Swanson's attorney of record, C. Judith Johnson at the following
address: Camerlengo & Johnson, 500 Airport Boulevard, Suite 350, Burlingame,
California 94010. Hall Kinion represents that its Board of Directors has
established a fair market value for the Hall Kinion common stock at Ten Dollars
($10) per share for the purpose of issuing options to Hall Kinion employees.
(2) The parties agree that in the event Hall Kinion has not made a
public offering of its stock by June 30, 1998, Swanson shall be able to redeem
his fifteen thousand shares of Hall Kinion common stock for the sum of One
Hundred Fifty Thousand Dollars ($150,000), plus interest at the rate of ten
percent (10%) per annum calculated from the date of issuance to the date of
redemption.
(3) Immediately upon the performance of the terms and conditions of
paragraph (1) of this Agreement, Swanson shall dismiss the Action by causing a
Request for Dismissal of the entire action with prejudice to be signed and filed
with the Santa Clara County Superior Court.
(4) Subject to the obligations of the parties created by this
Agreement, (A), Swanson for himself, his heirs, attorneys, executors,
representatives, predecessors, successors, assigns, and agents, and each of
them, releases and forever discharges Hall Kinion & Associates, Inc., Brenda C.
Hall, and Todd J. Kinion and their representatives, predecessors, successors,
assigns, officers, agents, directors, stockholders, partners, insurers,
attorneys, owners, employees, and affiliated and subsidiary corporations or
companies, past and present, and each of them, from any and all actions, suits,
liens, debts, dues, damages, claims, sums of money, obligations, liabilities,
judgments, bonds, executions and demands of every nature, kind and description
whatsoever, including, but by no means limited to, any claims of or for wrongful
termination, breach of contract, breach of the implied covenant of good faith
and fair dealing, fraud and deceit, intentional and negligent misrepresentation,
negligence, negligent and intentional infliction of emotional distress, invasion
of privacy,
- 2 -
<PAGE>
conversion, and promissory estoppel, whether known or unknown, and whether
suspected or unsuspected, either at law, or equity, or otherwise, which may have
arisen under and by virtue of the laws of any jurisdiction, which Swanson has or
has had against Hall Kinion.
(5) Swanson represents and agrees that in executing this Agreement,
he does so with full knowledge of the rights which he may have with respect to
the matters addressed herein, and that he does not rely and has not relied upon
any representation or statement made by Hall Kinion, its attorneys, agents or
employees with respect to any of the facts involved in the controversy
compromised or with regard to his rights or asserted rights in that connection,
and he assumes the risk of any mistake of fact in connection with the true facts
involved in such controversy or in connection with any facts which are unknown
to him. In this connection, all rights under Section 1542 of the Civil Code of
California, are expressly waived by Swanson. Section 1542 of the California
Civil Code provides as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
(6) Hall Kinion hereby releases, acquits and forever discharges
Swanson from any and all claims, disputes, causes of action, potential causes of
action, known or unknown, arising out of Swanson's employment by Hall Kinion,
termination of the employment of Swanson, and all matters related to or arising
out of said employment.
(7) This Agreement sets forth the entire matter between the parties
with respect to this litigation and settlement. All agreements, covenants,
representations or warranties, express or implied, of the parties with regard to
this subject matter are contained in the Agreement. No other agreements,
covenants, representations or warranties, express or
- 3 -
<PAGE>
implied, oral or written, have been made outside of this Agreement. All prior
and contemporaneous conversations, negotiations, possible and alleged agreements
and representations, covenants and warranties with respect to the subject matter
are waived, merged and superseded by this Agreement.
(8) The terms of this Agreement may be amended, modified, or
eliminated and the observance or performance of any term, covenant, condition or
provision may be omitted or waived (either generally or in a particular instance
and either prospectively or retroactively) only by the mutual written consent of
all parties. The waiver by any party of any breach of any term or provision of
this Agreement shall not be construed as a waiver of any subsequent breach.
(9) This Agreement shall be binding upon and inure to the benefit of
the parties, and their respective heirs, administrators, personal
representatives, successors and assigns.
(10) The parties explicitly acknowledge that this Agreement
represents a settlement of disputed claims and that by entering in this
Agreement, no party admits or acknowledges the existence of any liability or
wrongdoing.
(11) In the event that any suit or proceeding is brought to enforce,
construe, interpret, rescind or cancel this Agreement, or any of its provisions,
the prevailing party shall recover against the other party all of its actual
attorneys' fees incurred in connection with such action or proceeding, including
any appeals.
(12) The parties agree that this Agreement is made, executed and
entered into and is intended to be performed within the State of California, and
that this Agreement is to be construed under the laws of the State of
California.
(13) Each of the parties to this Agreements warrants, covenants and
agrees that the persons executing this Agreement
- 4 -
<PAGE>
are authorized and empowered to enter into and execute this Agreement for and on
behalf of the person or entity they represent, and by their execution of the
Agreement, each respective entity or person they represent, and all persons,
partnerships, corporations, joint ventures, and any person or thing affiliated
with them shall be bound by the terms of this Agreement.
(14) Each party acknowledges and warrants that it has been
represented by counsel of its own choice throughout all negotiations which
preceded the execution of this Agreement.
(15) Each party to this Agreement confirms and admits that he, she or
it, has read and understands the Agreement, its terms, consequences and
ramifications and is satisfied with the Agreement and signs the Agreement
voluntarily.
DATED: 5/30/97 /s/ RICHARD E. SWANSON
----------- -----------------------------------
RICHARD E. SWANSON
DATED: HALL KINION & ASSOCIATES, INC.
----------- A California corporation
By: /s/ BRENDA C. HALL
-----------------------------------
DATED: 5/13/97 /s/ BRENDA C. HALL
----------- -----------------------------------
BRENDA C. HALL
DATED: 5/13/97 /s/ TODD J. KINION
----------- -----------------------------------
TODD J. KINION
- 5 -
<PAGE>
ALL-PURPOSE ACKNOWLEDGMENT
- --------------------------------------------------------------------------------
STATE OF TEXAS )
) ss.
COUNTY OF TRAVIS )
------
On this 5th day of June, 1997, before me, Claire A. Borne, personally
--- ---------------
appeared RICHARD E. SWANSON,
------------------
personally known to me
--------
- OR -
X proved to me on the basis of satisfactory evidence to be the
--------
person whose name is subscribed to the within instrument and acknowledged to me
that he executed the same in his authorized capacities, and that by his
signature on the instrument the person, or the entity upon behalf of which the
person acted, executed the instrument.
WITNESS my hand and official seal.
[NOTARY PUBLIC SEAL /s/ Claire a. Borne
APPEARS HERE] ----------------------------------------
Signature of Notary
State of Texas
My commission expires: 9-10-2000
--------------------------
-------------------------------------------------
CAPACITY CLAIMED BY SIGNER
X INDIVIDUAL
- -------
CORPORATE
- ------- --------------------
OFFICER(S)
----------------------
TITLE(S))
PARTNER(S) LIMITED
- ------- -------
GENERAL
--------
ATTORNEY-IN-FACT
- -------
TRUSTEE(S)
- -------
GUARDIAN/CONSERVATOR
- -------
OTHER:
- ------- -----------------------------------------
-----------------------------------------
SIGNER IS REPRESENTING:
------------------------------------------------------
------------------------------------------------------
(Name of Person(s) or Entity(ies)
<PAGE>
ALL-PURPOSE ACKNOWLEDGMENT
- --------------------------------------------------------------------------------
STATE OF CALIFORNIA )
) ss.
COUNTY OF SANTA CLARA )
On this 13th day of May, 1997, before me, Mary E. Howe, personally
---- ------------
appeared TODD J. KINION,
--------------
X personally known to me
--------
- OR -
proved to me on the basis of satisfactory evidence to be the
--------
person whose name is subscribed to the within instrument and acknowledged to me
that he executed the same in his authorized capacities, and that by his
signature on the instrument the person, or the entity upon behalf of which the
person acted, executed the instrument.
WITNESS my hand and official seal.
[NOTARY PUBLIC SEAL /s/ Mary E. Howe
APPEARS HERE] --------------------------------------------
Signature of Notary
State of California
My commission expires: June 2, 2000
-------------------
-------------------------------------------------
CAPACITY CLAIMED BY SIGNER
X INDIVIDUAL
- -------
CORPORATE
- ------- --------------------
OFFICER(S)
---------------------- [NOTARY PUBLIC SEAL
TITLE(S)) APPEARS HERE]
PARTNER(S) LIMITED
- ------- -------
GENERAL
--------
ATTORNEY-IN-FACT
- -------
TRUSTEE(S)
- -------
GUARDIAN/CONSERVATOR
- -------
OTHER:
- ------- -----------------------------------------
-----------------------------------------
SIGNER IS REPRESENTING:
------------------------------------------------------
------------------------------------------------------
(Name of Person(s) or Entity(ies)
<PAGE>
ALL-PURPOSE ACKNOWLEDGMENT
- --------------------------------------------------------------------------------
STATE OF CALIFORNIA )
) ss.
COUNTY OF SANTA CLARA )
On this 13th day of May, 1997, before me, Mary E. Howe, personally
---- ------------
appeared BRENDA C. HALL,
--------------
X personally known to me
--------
- OR -
proved to me on the basis of satisfactory evidence to be the
--------
person whose name is subscribed to the within instrument and acknowledged to me
that she executed the same in her authorized capacities, and that by her
signature on the instrument the person, or the entity upon behalf of which the
person acted, executed the instrument.
WITNESS my hand and official seal.
[NOTARY PUBLIC SEAL /s/ Mary E. Howe
APPEARS HERE] -----------------------------------------
Signature of Notary
State of California
My commission expires: June 2, 2000
-----------------------
-------------------------------------------------
CAPACITY CLAIMED BY SIGNER
INDIVIDUAL
- -------
CORPORATE
- ------- --------------------
OFFICER(S)
----------------------
TITLE(S))
PARTNER(S) LIMITED
- ------- -------
GENERAL
--------
ATTORNEY-IN-FACT
- -------
TRUSTEE(S)
- -------
GUARDIAN/CONSERVATOR
- -------
OTHER:
- ------- -----------------------------------------
-----------------------------------------
SIGNER IS REPRESENTING: BRENDA C. HALL, individually
------------------------------------------------------
HALL KINION & ASSOCIATES, INC.
------------------------------------------------------
(Name of Person(s) or Entity(ies)
<PAGE>
EXHIBIT 11.1
HALL, KINION AND ASSOCIATES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
PRO FORMA
1994 1995 1996 1996 (1)
----- ----- ------ ---------
<S> <C> <C> <C> <C>
Net income.................................... $ 33 $ 682 $1,361 $ 475
===== ===== ====== =====
Weighted average common shares outstanding(2). 6,282 6,282 7,980 7,980
Weighted average common share equivalents
related to stock options and warrants........ -- 45 426 426
Common shares issued and stock options granted
(using the treasury stock method assuming an
initial public offering price of $12.00)
between March 1996 and the initial public
offering included pursuant to Securities and
Exchange Commission rules.................... 945 945 945 945
----- ----- ------ -----
Shares used in per share computation.......... 7,227 7,272 9,351 9,351
===== ===== ====== =====
Net income per share.......................... $ -- $0.09 $ 0.15 $0.05
===== ===== ====== =====
</TABLE>
- --------
(1) The pro forma computation reflects the combined results of operations of
Hall, Kinion and Associates, Inc. and Subsidiaries and TeamAlliance
Technology Partners, L.P. and Subsidiaries, as if the acquisition, which
was completed on December 2, 1996, had been completed at the beginning of
1996.
(2) Including the effect of the conversion of mandatorily redeemable preferred
stock to common stock.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 161,000
<SECURITIES> 0
<RECEIVABLES> 11,168,000
<ALLOWANCES> (354,000)
<INVENTORY> 0
<CURRENT-ASSETS> 12,268,000
<PP&E> 6,170,000
<DEPRECIATION> (1,211,000)
<TOTAL-ASSETS> 26,826,000
<CURRENT-LIABILITIES> 13,118,000
<BONDS> 0
0
9,900,000
<COMMON> 521,000
<OTHER-SE> (5,496,000)
<TOTAL-LIABILITY-AND-EQUITY> 26,826,000
<SALES> 42,691,000
<TOTAL-REVENUES> 42,691,000
<CGS> 25,933,000
<TOTAL-COSTS> 25,933,000
<OTHER-EXPENSES> 15,596,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 345,000
<INCOME-PRETAX> 965,000
<INCOME-TAX> 410,000
<INCOME-CONTINUING> 555,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 555,000
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
